4 essential tax tips for new parents

As a new parent, sleepless nights aren’t the only thing that can be overwhelming. Taxes are probably last on your list of worries. However, parents are offered valuable tax breaks by the IRS that weren’t available to them before they welcomed a child. Kids are expensive and parents can often be blindsided by the unexpected costs – so it’s important to understand how having a baby can impact your obligations to the IRS.

Here are 4 essential tax tips for new parents:

1. Obtain a Social Security number for your baby

The only way the government will honor all your deductions and credits is having new parents confirm the child’s birth. Therefore, obtaining a Social Security number for your baby is crucial. Applying for your child’s Social Security number typically happens at the hospital right after the child is born. If you don’t deliver your baby at a hospital, you may need to visit your local Social Security Administration (SSA) office. At the SSA office, you need to complete the Form SS-5, the application, and provide the parents’ Social Security numbers, proof of the baby’s identity, age, and citizenship status. Birth or medical records, including a birth certificate, should be enough for your baby, while you’ll need your own passport, governmental ID or driver’s license.

2. Even if your baby was born on Dec. 31, 2019, you have tax credits for the entire year

Your new baby counts for the entire year. If this is your first child, it will be your first time claiming parental tax breaks, so it may be useful to hire a tax professional to help you navigate this new life milestone that comes with tax implications. If you use a tax preparation software, it should prompt you with a question about whether you welcomed a new baby during the tax year to help you identify the proper parental deductions and credits.

3. Consider changing your W-4

To ensure you don’t end up overpaying the IRS during the year, consider adjusting your withholdings to account for your new family situation. Ask your human resource department if you can fill out a new W-4 in order to reduce the amount withheld from each paycheck in taxes. This will allow for extra income to cover your new baby expenses.

4. Start saving for your child’s college fund now

Your baby may only be a few months old, but it’s nearly too early to start saving. Based on the current economic climate, college and education will continue to be a pricey expense. Consider opening a 529 plan account, which accumulates money for college tax-free and can be claimed as a deduction on your taxes or invest in an Education Saving Account. The money that you set aside for your child’s education is not taxed and you can contribute up to $2,000 each year.

A new baby can mean major changes in your taxes. So, understanding the IRS rules is important, especially if it’s your first child. We hope these tips help but you may also want to consider reaching out to a tax professional to maximize the tax savings available.

Crosslin’s tax team is happy to discuss this or any other tax issues. Please give us a call at 615.320.5500.

FASB SIMPLIFIES ACCOUNTING FOR GOODWILL & CERTAIN IDENTIFIABLE INTANGIBLE ASSETS FOR NFPS

The FASB issued ASU 2019-06 to simplify how a non-profit entity accounts for goodwill and certain identifiable intangible assets by permitting the use of two private company options. The new ASU is available here, and becomes effective immediately.

Background

In 2014, the FASB issued the following ASUs, both consensuses of the Private Company Council (PCC):

  • ASU 2014-02, which permits, but does not require, a private company to amortize goodwill; and
  • ASU 2014-18, which simplifies the accounting by a private company for certain identifiable intangible assets in a business combination.

Main Provisions

ASU 2019-06 extends these private company alternatives to not-for-profit entities (NFPs). No other changes were made for public or private entities.
 
An NFP electing the accounting alternative in ASC 350 will amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that a shorter useful life is more appropriate. Under this alternative, the entity is required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill must also be tested for impairment when a triggering event occurs that indicates the fair value of the entity (or a reporting unit) may be below its carrying amount.
 
An NFP electing the accounting alternative in ASC 805, for transactions occurring after adoption of the alternative, should subsume into goodwill and amortize the following assets:

  • customer-related intangible assets that are not capable of being sold or licensed independently from other assets of a business; and
  • all acquired noncompete agreements.

An entity electing this alternative is required to adopt the alternative in ASC 350 to amortize goodwill. However, the reverse is not true; that is, an entity electing the accounting alternative in ASC 350 is not required to adopt the accounting alternative in ASC 805.
 

Effective Date and Transition

The amendments are effective upon issuance of ASU 2019-06. Consistent with the existing private company alternatives for goodwill and certain intangible assets, NFPs electing to adopt these alternatives do not have to demonstrate preferability and should follow the transition guidance the first time they elect to adopt the alternatives. NFPs have the same open-ended effective date and unconditional one-time election that private companies have.

The transition methods for the guidance on each accounting alternative are the same for NFPs as the previous transition methods for private companies. An entity should apply the accounting alternative in ASC 350, if elected, prospectively for all existing goodwill and for all new goodwill generated in acquisitions. An entity should apply the accounting alternative in ASC 805, if elected, prospectively upon the occurrence of the first transaction within the scope of the alternative.

On the Horizon

The FASB is continuing to evaluate the accounting treatment for goodwill and intangible assets. Additional changes in this area are possible, which could affect non-profit entities adopting this ASU.

Crosslin Technologies Named to MSP501 List

Congratulations to Crosslin Technologies, who has been named as one of the world’s premier managed service providers on the prestigious 12th-annual Channel Futures MSP 501 rankings. This is our third year on the list, coming in at #425. MSPs are ranked according to a unique methodology that weights revenue figures according to how well the applicant’s business strategy anticipates trends in the fast-evolving channel ecosystem. We are extremely proud of Crosslin Technologies and its fabulous team for achieving this amazing accomplishment. Way to go, CT!

Summer Not-For-Profit Newsletter

The summer not-for-profit (NFP) newsletter, Nonprofit Standards, is now available online with the latest issues affecting the NFP industry.  Topics covered include:

  • The New 21 Percent Executive Compensation Tax
  • GASB Simplifies Accounting for Capitalized Interest
  • Taxable Income from Parking and Other Fringe Benefits
  • Lessons Learned from Implementing ASU 2016-14 Functional Expenses 

Click here to read more!