Even if you don't have children, I am sure you have friends that do. As everyone says, kids can be very expensive. You can be that person that saved your friend or yourself money by passing on these tidbits. While there are some standard tax breaks (dependency exemption) for children, you need to keep your focus on some of the other ones so that you can get the maximum benefit from them. One particularly pressing issue is that North Carolina will begin to reinstate income limits for tax breaks on 529 college savings plan contributions starting on January 1, 2012. If someone is married and has a federal AGI of greater than $100,000 or head of household with an AGI of greater than $80,000 they could lose this state tax
break in 2012. If someone falls into that group they may want to consider maximizing their deductible contribution for 2011.
Some of the child related deductions and tax credits are phased out with income. People are often shocked to find this out the hard way as their income grows. One year they might receive the $1,000 child / additional child tax credit and the next year it is gone. As someone's income grows they need to be aware of these limits. It is obvious that the government feels that people with higher incomes don't need tax breaks for children as much as the general population. The moral of the message is not to avoid earning more, but to be aware of this fact and plan to minimize it and/or plan to handle its impact.
A common question that I have received recently is what do I need in order to deduct day care expenses? Again, this one can be subject to income phaseout levels. Assuming that it is not, you need to have the name, tax d number, and address of the person providing the service while both parents are working. It can be difficult to get an individual to provide their tax id number. It is one of the factors you have to consider when choosing a child care provider. The maximum child care credit is $600 per child and is subject to percentage limitations based on income.
I hope to see you in the near future. If there is anything I can ever do, please let me know. Adam Shay, Wilmington NC CPA.