Five Tax Breaks for New Parents
From child care to school tuition, parents face extraordinary expenses throughout the year. But at tax time, several credits and benefits are available to provide some relief. 415 Group Supervisor Evan Hudson, CPA, explains the opportunities.
Several tax breaks are available to new parents. Two of the items listed in this article — the child tax credit and the educational benefits for a 529 plan — both partially changed due to tax reform. The child tax credit will increase and be available to higher-income taxpayers, and 529 plans will be more flexible now.
Previously, 529 plans were only available to help pay for college expenses, but now you can also use them to pay for private elementary and secondary school tuition. One thing this article doesn’t mention: when you contribute to a 529 plan, most states give you an adjustment on your state tax return. In Ohio, as of 2018, you receive a maximum of $4,000 per child. For example, if you have two children, and you contribute $8,000 to a 529 plan ($4,000 for each child), you’d receive a $8,000 reduction of income on your state return. Most states offer similar benefits for contributing to those plans.
Some of these tax breaks for new parents, like the child tax credit or the adoption credit, are straightforward. The credit is what it is. But other items mentioned here, like 529 plans and the ‘kiddie tax,’ can get more strategic, so keep your accountant informed.
It’s always important when you’re using an accountant or financial advisor to be in contact with them throughout the year. Don’t view them as someone only available to you once a year for compliance. Your accountant is someone who you can and should bounce off ideas. Particularly with major life events — like marriage, divorce, children, college or other big shake ups — it’s always good to reach out to see what, if any, impact that will have on your tax liability. At 415 Group, we’re always available if you have any questions or concerns.