10 Tax Mistakes Parents Often Make

Social Security number delays and overlooked tax credits end up costing families money.

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Between sleep deprivation and hectic schedules, parents don’t always have time to decipher the tax code. That means many of them lose out on potential savings in the form of tax credits, deductions, and tax-advantaged savings plans. We interviewed tax experts on the most common mistakes that parents make when they do their taxes. Here are the top 10:

[See 50 Ways to Improve Your Finances in 2011.]

Failing to quickly get a Social Security number for a new child:

Mark Luscombe, principal federal tax analyst for the tax firm CCH, says that even newborns need Social Security numbers right away. Hospitals make it easier by helping new parents with the paperwork, but parents are still responsible for making sure they get the number and use it correctly when filing taxes. Otherwise, Luscombe says, the IRS could disallow some of the tax benefits.

Luscombe adds that parents themselves need to make sure they have their correct Social Security number on their tax forms. This can be especially challenging for people who recently got married, changed their names, and requested a new number. “If the name on the tax return and the Social Security number don’t match up, the IRS gets concerned,” he says.

Omitting the dependent exemption for babies born at the end of the year:

Even babies born on December 31 provide their parents an entire year’s worth of exemption status. “You don’t have to apportion it to the time the baby was alive,” explains Barbara Weltman, attorney and author of J.K. Lasser’s 1001 Deductions and Tax Breaks 2011. She adds that even high-income tax payers get the full value of the exemption this year.

Overlooking the adoption credit:

This credit, which can be worth about $13,000, is designed to alleviate some of the expenses associated with adopting a child. But because adoption often takes more than one year and involves many types of expenses, parents can get overwhelmed with the paperwork. Bob Meighan, vice president of TurboTax, recommends keeping careful track of receipts, then filing for the credit the year of the adoption.

Forgetting to keep careful records of care providers:

Many working parents are eligible for the child and dependent tax credit, which can help ease some of the costs of daycare, babysitters, and after-school programs for children younger than 13. What often trips parents up, says Luscombe, is that they forget to record the tax ID or Social Security numbers of the care providers throughout the year. Without that information, they can’t file for the tax credit. “If you’ve had a succession of babysitters and have no Social Security numbers, then you could lose out on part of the credit for not doing your homework,” he says.

Stacey Bradford, author of The Wall Street Journal’s Financial Guidebook for New Parents, adds that summer day camp fees also count if both parents are working, looking for work, or studying, as long as the child is under age 13.

[See 5 Smart Ways to Save Money for Your Children.]

Claiming something other than head of household status:

Single parents in particular often forget to claim head of household status, which provides certain tax advantages, including the ability to claim dependents. “There’s a lot of confusion about the head of household filing status and a lot of people don’t seem to understand what that means,” says Luscombe. Single parents could be eligible for this status if they paid more than half the cost of maintaining their household throughout the year and live with their children for more than half the year.

Ignoring the child tax credit:

The child tax credit, which is worth up to $1,000, phases out for higher earners, but most taxpayers qualify for it, says Meighan. It applies to children under age 17 who live with the parent claiming the credit for more than half the year.

Not filing taxes for an older child with a part-time job:

“Parents forget that an older child might have a tax filing requirement,” says Meighan, even if that child is still a dependent. And failing to file that older child’s taxes could mean losing out on a refund, because teens often don’t earn enough to have any tax liability, even though their employers have withheld taxes. “To get that money back, they have to file a return,” adds Meighan.