Tax Talk: Big Savings in Small Packages

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Tax Talk: Big Savings in Small Packages

By Latif Lewis

From Black Enterprise
www.blackenterprise.com

You’re probably asking yourself, The New Year isn’t even here yet, so why are we already talking taxes? Well there are plenty of ways for you to save on taxes next year if you act by Dec. 31.

New bundles of joy were born to plenty of proud parents in 2004. Learn several ways your new baby can help you save on taxes.

1. Apply for a Social Security number for your child.

“You have to have the Social Security number in order to claim the baby as an exemption on your tax return,” says Anita T. Conner, CPA and principal of a Philadelphia-area-based certified public accounting firm bearing her name. “The exemption is worth $3,100 this year and [parents] could potentially be eligible for the child tax credit. Depending on what their income level is, they may be eligible for the earned income credit. So they could get all three if they have a Social Security number,” she advises.

NOTE: As long you apply for a Social Security number by the time taxes are filed, parents are eligible for the deduction. The easiest way to apply for your baby's Social Security number is to tell a hospital representative. Otherwise, you can fill out the necessary forms or visit your local Social Security office.

2. Calculate your Adjusted Gross Income.

Your gross income from taxable sources minus your maximum allowable adjustments can help you determine whether you qualify for the child tax credit. Married taxpayers, filing jointly, with an AGI of less than $110,000 qualify for the entire credit of $1,000. If you’re married, but filing separately, the limit is $55,000. For single filers, the limit is $75,000.

3. Enroll in your company-sponsored pretax childcare assistance reimbursement plan.

The pretax childcare assistance plan “helps to maximize savings because it’s a pretax deduction. So if the employer allows [an employee] to deduct $5,000, that would be treated as nontaxable income and would not be included in [the adjusted gross income for] tax purposes,” Conner says.

NOTE: If your employer does not have a plan, be sure to claim the child and dependent care credit when you file your return. Conner says if parents “pay someone to take care of their child [they] will be able to get a childcare credit.” up to a $2,100 tax savings.

4. Itemize if you’re eligible. ”You can take medical expenses as an itemized deduction to the extent that they exceed 7 ½ % of your income,” Conner explains. “So therefore, any out of pocket expenses, whether it’s prescriptions, [fertility costs], special repairs to your home for medical expenses, related to any of your dependents would be considered for you as itemized deductions. So if you have a child and you were only paying for you and your spouse, your medical insurance premiums would be deductible as well.”

5. Consider adjusting your W-4.

Conner says parents “should at least look at [adjusting their W-4]. You can take an additional withholding exemption so that you will have more income in your paycheck. But, if you have less income taxes deducted from your paycheck,” Conner cautions, “keep in mind that at the end of the year it could affect your refund.” You could end up owing more than you planned during tax time. The upside is “that you will have more take home pay.”