|
 Top
Ten Tax 411 Tips For New Parents
Excerpt from For The Love Of Money:
The 411 To Taking Control Of Your Taxes and Building Your Net Worth
(2005 iUniverse, Inc.), by Shannon
Nash, CPA
1. Congratulations on your new bundle of joy? May “God Bless
The Child,” (Billie Holiday, 1939). Make sure to get a social
security number for your child. You want to be able to claim the
“Light of Your Life” on your tax return.
2. You can now claim a personal exemption (a $3,100 deduction, $3,200
for 2005) for your new beautiful child.
3. Do you have “Work To Do” (Vanessa Williams, 1992)?
If you plan on going back to work, you will probably have daycare
expenses. You may be able to deduct a tax credit, from $600 to $1,200
for some of your daycare expenses. To qualify, you must have daycare
expenses for a child who is under 13 years of age (there is no age
limit for special needs children). Note: Practically speaking, if
you participate in your employer’s dependent care assistance
plan, you may not be able to take this credit.
4. If you hire someone to watch your child as a nanny, you could
have to pay the employment taxes (also called nanny taxes). This
tax applies once you pay the nanny over $1,400 in a year.
5. Are you a stay-at home mom? You may not miss many things about
your J-O-B, but you did like the tax advantages of your 401(k).
Well have no fear – the homemaker IRA is “Right Here”
to the rescue (SWV, 1992). You can contribute up to $3,000 ($4,000
for 2005) to a Traditional IRA and take a tax deduction for this
contribution, and the earnings grow tax free. You pay taxes when
you take the money out after age 59½. Or, you can contribute
the same amount to a Roth IRA; but, you don’t get a tax deduction.
Again, the earnings grow tax-free, but this time when you take the
money out after 59½, you pay no taxes.
6. Start saving for your child’s education now. There are
several tax-advantaged plans you can use (like 529 Plans or, Coverdell
Education Savings Accounts). The money you put in grows tax-free,
and you pay no taxes when you take it out -- as long as the money
goes to pay for your child’s education expenses. You can start
some of these plans with as little as $50 a month. Remember, every
little bit will help save your child from having large student loans.
7. You may be able to deduct the interest and points from a home
improvement loan, where you use the proceeds for things like making
additions to your house to help with your expanding family size.
8. Having a baby can be expensive. You can deduct the medical expenses
that you pay (after reimbursements from insurance) if they are over
7.5% of your adjusted gross income. This basically means, if you
make $50,000, you must have medical expenses greater than $3,500
before you can deduct a penny. Medical expenses are much more than
doctor visits. They include things, like: child birth classes, prescription
drugs, meals and lodging, mileage to and from doctor’s appointments
(14 cents per mile for 2004 (15 cents per mile for 2005), and other
transportation costs.
9. Is your child adopted? You may be able to claim up to $10,390
in adoption tax credits based on your adoption costs, such as adoption
fees, court costs, attorney fees, and travel expenses.
10. Want more money in your paycheck? Consult your tax advisor before,
or right after, your child is born to see if you should change the
amount of tax withholding from your paycheck.
Copyright 2005. Shannon Nash. All rights reserved.
Shannon Nash is a tax attorney and C.P.A. She received her Bachelor's
degree in accounting from the University of Virginia, McIntire School
of Commerce and her law degree from the University of Virginia School
of Law. She is a past officer of the American Bar Association and
Chair of the National Bar Association Tax Section. She also writes
the "Special Needs Journey" column.
March 10 2005
|
