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Have a new child in the family?
Monday, January 23, 2012

1)  Dependent exemption – once the baby is born make
sure to file with the Social Security Administration in order to get a Social Security number for your child.  This will allow you to claim them as a dependent on your tax return.  For 2011, the dependent exemption is $3,700 – if your marginal tax rate is 35% that would be $1,295 extra in your pocket!

2)  Child tax credit – this credit is a $1,000 credit and is a direct offset against federal income taxes due.  Basically, if you don’t owe federal taxes, you will receive nothing from this credit.  Fortunately (or rather unfortunately!) most of us do not find ourselves in that situation.  Be careful, however – this credit is phased out based on income – if you are married filing jointly, the credit is reduced by $50 for every $1,000 of income above $110,000.

3)  529 accounts – these are savings accounts which are set up for the education of your child and which work similarly to Roth IRA plans.  Contributions to these accounts are not tax deductible on the federal level BUT earnings on the investments in these accounts are tax-free IF they are used for the child's educational expenses.  There are many different 529 accounts which also provide specific state tax advantages.

Please contact me if you have any further questions
regarding taxes and I hope your new addition brings you much joy and happiness!
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