Having a Baby? Here Are Helpful Tax Tips!

Congratulations on your soon to be dependent!  Regardless of when your child’s birthday is, your child is considered to be your dependent for the whole year in which he or she is born or adopted.  Your new addition is bound to cost you a bundle over the years, but here are some tips for maximizing the tax savings available to you as a parent.  Make sure you file for your child’s Social Security Number immediately after their arrival!

1. Dependency Exemption – This is the benefit most taxpayers have heard about.  For 2014, your new dependent will reduce your taxable income by $3,950, subject to adjusted gross income (AGI) limits.
2.  Child Tax Credit – This $1,000 tax credit is available for each dependent child living with you who is under the age of 17, subject to qualifying criteria and modified adjusted gross income (MAGI) limitations.
3.  Credit for Child and Dependent Care Expenses – You may qualify for this credit if you pay someone to care for your dependent child who is under 13 years of age, so that you and your spouse can work or look for work.  In order to claim the credit, you will need to provide your CPA with the total amount you paid to the child care provider, as well as the name, address and tax ID number of the provider.  Providers may include day care centers, a paid sitter, or even a summer camp.
4.  Dependent Care Flexible Spending Account – If your employer offers this benefit, it is worth considering.  Participation in this program will impact your Dependent Care Credit, so speak to your CPA to see if the program is more beneficial for your situation.
5. Adoption Credit – If you adopted your new family member, you may qualify for an Adoption Credit worth up to $13,190 in 2014, subject to AGI limitations.
6. College Savings – Consider a 529 College Savings Plan for your child.  Many states offer a tax deduction for the amount of annual contributions made to that State’s Plan, such as New York.  New York State offers account owners filing jointly a deduction of up to $10,000 for contributions made each year to the New York Plan! Additionally, when your child is ready to go off to college, withdrawals of both contributions and earnings will not be taxed by the IRS, if they are used to pay for your child’s qualified higher education expenses.
7. Kid IRA’s – If your child has earned income this year, you may consider opening an IRA for them.  Contributions are capped at the lesser of 100% of the child’s earned income or $5,500 for 2014.  Since most infants don’t work – keep this in mind for when your child starts his first summer job, or starts babysitting!