TAX TIP TUESDAY: New Parents, Take Advantage of Tax Benefits
Becoming a parent is a huge deal for many reasons- one being that there’s now a long list of things to consider when it comes to tax planning. Whether you are a first time parent, grandparent, or know someone who is expecting, here are some tax tips to consider:
Initiate a 529 education savings plan. These plans offer low-cost investments that grow tax-free as long as the funds are used to pay for eligible education expenses (including up to $10,000 for elementary and secondary tuition). They’re administered by the state, but feel free to shop around for a plan that works for you. Starting early maximizes the amount of tax-free compound interest you can earn in those years before college.
Update Form W-4. Once parents return to work, year-to-date withholding and current allowances on the Form W-4 need a review. The addition of a child brings many tax changes, including a $2,000 Child Tax Credit and Child and Dependent Care Credit for child-care expenses.
Track medical expenses. Consider a tax-advantaged account such as a Health Savings Account (HSA) or Flexible Spending Account (FSA) to help with those extra doctor visits. If not, an individual account might be available, depending on your insurance, or itemized deductions may be taken.
Review this information and share with anyone expecting a child. Taking full advantage of the tax benefits that come with being a new parent will help you stay afloat financially as your family grows. Call 805-496-2828 to get a head start on 2019 tax planning.
Tax Tip: A special provision for 529 savings plans allows five years worth of gifts ($75,000) to be contributed at once — this can be a great estate-planning strategy for grandparents.
