Don't Mess With Taxes

To do by Sunday: Have a baby.

You say you're not having a baby? Not adopting one either? Not even thinking about it?

Well, you're obviously not with the tax-influenced child-bearing program. According to a recent New York Times story, the end of December -- actually today, Thursday, 12/28 -- will probably be, statistically speaking, prime delivery day for most U.S. mothers. Or as it's called in the story, National Birth Day, aka the day with more births than any other.

Excuse me. The hubby is hyperventilating. I'll be right back.

OK. He's fine. I assured him that this post is not just some clever way to break some news that he finds, shall we say, disconcerting. No. I'm just sharing interesting tax data.

And some of that data, collected from 1997 through 2003 by the U.S. government, found that in four of the years during that time period, America's National Birth Day has arrived between Christmas and New Year’s Day.

Part of the reason for the year-end birth rush, according to the story (which you can read in full here if you register), is that a child is one of the best tax breaks around. Over the last decade-plus, tax benefits associated with children have been increasing. As long as the rug rat appears before midnight, even just one minute before, on Dec. 31, his or her parents get the full year's worth of benefits when they file their 1040 the next year.

Research by economists Amitabh Chandra of Harvard and Stacy Dickert-Conlin of Michigan State found "that people who stood to gain the most from the [child-related] tax breaks were also the ones who gave birth in late December most frequently. When the gains were similar, high-income parents -- who, presumably, are more likely to be paying for tax advice -- produced more December babies than other parents."

Ahhh. That explains it: high-income parents. As with many tax situations, those who can afford to hire well-versed financial and tax advisers are generally the ones who come out less bloodied in the annual dual with the IRS.

But the general idea, that in order to save a few grand a year in taxes is enough to shape behavior related to a major life event, is intriguing. I know the hubby and I pushed our wedding day back a  bit to benefit from what was then known as the dual-earner tax deduction (an attempt back in the '80s to ease the marriage penalty), so I understand the attraction of a well-placed tax benefit. But then I've always been a tax romantic at heart.

Counting kiddie costs: Having a kid, though, is on a whole 'nother and much more serious tax plane. Sure, you get the $1,000 child tax credit and in 2006 another $3,300 for the additional exemption. But that's a tiny drop in the humongous ocean of child rearing costs. Is that $4,300 (even when bumped up a bit by annual inflation adjustments) going to make a real dent in the associated baby costs?

Then you have the rest of the kid's life: clothing, food, school, insurance when he starts driving (and yes, the choice of "he" was intentional; auto insurance coverage for adolescent, and even young adult, males is way more expensive than a similar policy for a girl). The list goes on and on. The sundry tax breaks associated with these events, such as child care credits and education expense write-offs, help but again only a tiny bit.

This MSNMoney article by new parent MP Dunleavey details the financial considerations she's had to take into account since the birth of her first child. And here are a couple of online calculators to help give you an idea of how much parents are likely to spend on their growing brood: Practical Money Skills (check the calculator pull-down menu) and Baby Center.

Heck, if we all were fanatic bean counters, the human species would have vanished by now!

And speaking of accounting, you need to factor in the actual event costs, too. One fiscally astute reader of the Times' story cited another argument for December-induced births vs. waiting for nature to take its course in January. By year's end, he wrote, people probably have met their insurance deductible for the year, making it more financially wise to deliver the bundle of joy in December than wait until a time when the parents would end up paying more of the hospital costs.

So if you're thinking of starting or adding to your family, please accept this posting as just one more tool to help you make that momentous life-changing decision. Take your time. There's no hurry now.

You've got a full year to decide and, if the answer is yes, collect your tax breaks.