Parenthood: More than a tax deduction

I can't believe it has almost been a year since my son was born.  As my husband worked on the third and fourth coats of navy blue paint, I was preparing for my son's birth by reading every book, magazine and website I could find. Little did we know that there was nothing we could do to fully prepare for this past year and all the joys of parenthood. Now that my son is rolling and giggling all over the house and I am preparing our individual tax returns, I realize all of the ways he has not only impacted our lives but also our tax situation.

In addition to claiming a child as a dependent, there are the child tax and the dependent care credits to consider. The child tax credit for 2009 and 2010 is $1,000 with the AGI phaseout beginning at $75,000 for singles and $110,000 for married couples. The dependent care credit allows you to claim a percentage of qualifying expenses up to $3,000 (one child) or $6,000 (more than one).

Once I returned to work, I enrolled in a flexible spending account. This account allows me to pay up to $5,000 of daycare expenses with pre-tax dollars. Taking advantage of my company sponsored flexible spending account allowed me to save more taxes than the dependent care credit.

Even though college is many years away, we opened a Georgia 529 account. All Georgia taxpayers can deduct up to $2,000 in contributions to their Path2College 529 plan account on their Georgia income tax return, per beneficiary. Any earnings from these accounts are free from federal and Georgia income tax when used for qualified education expenses.

Also, since becoming new parents, we decided to purchase a new vehicle to help protect our precious cargo. Buyers of new vehicles (not used) purchased after February 16, 2009 and before 2010 can potentially deduct the sales tax paid on the vehicle.

As you are preparing for a new child, don't forget to consider how he or she will impact your tax situation.

~Julie, Manager