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A NEW BABY CHANGES YOUR TAX PICTURE 
By Stephen J. Kahn, CPA 

Having a baby changes everything-including your income tax planning. Once you get the happy news, add the following items to your list: 

  • Talk to your employer (and CPA) 
  • Keep track of expenses 
  • Plan for your childís education 
The discussions with your employer and accountant will be about changing your Form W-4 to reduce your income tax withholding. In addition to an extra exemption, you may also be eligible for a $1000 child tax credit, plus another tax credit for any child care expenses you pay in order to work. Be sure to keep track of such expenses, and obtain the name, address, and social security number or taxpayer ID number of any child care provider. 

Keep careful records of all healthcare expenses related to the pregnancy. In addition to the tax credits mentioned above, you may be able to deduct items not covered by insurance, such as childbirth classes. Also, if your employer offers flexible spending accounts or a medical savings account, you may be able to pay for out-of-pocket medical expenses using pretax dollars. 

You should also begin planning for your childís education expenses. Look into using Education IRAs, with a maximum annual $2000 contribution, or Education Savings Bonds purchased in your name rather than in your childís name. Note that there are limits and conditions for both of these college planning options. Donít forget ordinary savings, perhaps even utilizing a Roth IRA for your child when he or she has earned income. 

There are many tax implications to having a child. If you would like more information or assistance, please give our office a call.  We can help you take the best tax advantage of what is already a happy occasion. 

(Stephen J. Kahn is a Certified Public Accountant and an Alexandria resident. The reader is cautioned that this information may not be applicable to the readerís specific circumstances or needs. The reader should contact a tax professional prior to taking any action based upon this information. Stephen J. Kahn, CPA assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information herein.) 
 

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