Year-End Tax Tips for Parents

For the third year, TurboTax ^® is conducting a nationwide search for America’s Cutest Last-Minute Tax Deduction! The proud parents of a baby born during December 1-31, 2009 have the opportunity to win $5,000! For info on the contest, please visit the TurboTax’s blog post here or head over to the Cutest Tax Deduction site, and oogle the precious tax dollars.

You have until January 7th to enter to win, and complete rules can be found at the site.

For those of us who have children already, Robert Meighan, an accountant and vice president of TurboTax, suggests the following additional tax tips for parents:

• Get a social security number for your child. This is key in claiming your new bundle of joy as a dependent on your taxes.
• Don’t overlook new tax breaks. New babies could deliver a $1,000 child tax credit.  This is a gift that keeps on giving until they turn 17-years-old.
• File a new W-4 form with your employer. Claiming an additional withholding allowance could increase your take-home pay.
• Use pre-tax dollars for childcare. Take advantage of your employer’s childcare reimbursement account if they offer one. These accounts, often called flex plans, let you divert up to $5,000 a year of your salary into a special account that you can then tap to pay child care bills.
• Claim the adoption tax credit. It’s worth as much $12,150 in 2009, if you adopted a child.
• Start saving for college. One option is a Section 529 state education savings plan. Contributions to these plans are not deductible: earnings grow tax free, and payouts are tax free too if the money is used to pay qualifying college bills.
• Contribute to a Coverdell Education Savings Account (ESA) Up to $2,000 a year can go into an ESA for any beneficiary, including newborns. Earnings are tax free if used to pay education expenses and ESA money can pay for elementary and high school expenses (even a computer used for school and educational software) as well as for college costs.
• Open an IRA in your child’s name. As soon as your youngster starts earning some money—babysitting or delivering papers, for example, or even paid modeling for infants—he or she can open an IRA.  Relatively small investments when a child is young can grow to eye-popping balances over the years.

To those tips I would add my own, remember to add your new baby to your healthcare plan at work. You will generally have 30 days, but check with your employer. We made this rookie mistake with baby #3, and ended up paying $150 out of pocket for 2 well visits after the fact.

Kelly

About Kelly

Kelly Whalen is the founder and editor of the Centsible Life. She started the blog in 2008 as her family faced a mountain of debt and the fixer upper they purchased became a FIXER UPPER. The website was born out of her desire to share what was working (and what was not) on her family's journey to financial security. Kelly lives in Minneapolis with her family.

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