What's New in Taxes – March 2011

IRS changes filing deadline

This year the deadline for filing various tax returns normally due on April 15 is being changed to April 18, 2011. The reason? Washington, D.C. is observing its Emancipation Day holiday on April 15, and though that's not a national holiday, the Treasury Department has extended Tax Day 2011 to Monday, April 18. The new deadline applies to individual and partnership tax returns, extension requests, and other tax deadlines such as making 2010 IRA and education savings account contributions, and making the first 2011 estimated tax payment.

A new baby can bring a lower tax bill

If you had a baby in 2010, or you're planning on having one in 2011, you are not only getting a little bundle of joy, but you're also getting a significant tax deduction. The amount of the deductions and credits certainly won't cover the cost of raising your child, but every little bit of tax savings helps. A few of the tax issues that you should be aware of include the following items.

* Additional exemption. Your new baby generates an additional exemption to claim on your return, and with the 2010 exemption level at $3,650 ($3,700 for 2011), that could equate to some significant tax savings.

* Child tax credit. You are also allowed a $1,000 credit against your taxes for your new family addition. And if your tax liability is less than the maximum credit, Uncle Sam will give you a refund for the difference.

* Dependent care credit. If you pay for child care to allow you to work or look for work, you may qualify for the dependent care credit.

Don't overlook savings for college. The sooner you can start saving, the more you can accumulate to be used for future education expenses. Here are three tax-advantaged ways to save for your new baby's future college expenses.

* Coverdell education savings account. You can deposit up to $2,000 annually into this account with withdrawals treated as tax-free if used for education.

* 529 college savings plan. This is another savings vehicle that allows you to put away even larger amounts for college expenses, with the earnings on the account treated as tax-free if used for education.

* Roth IRA. When your little one gets a bit older and begins to work, consider depositing some of that income into a Roth IRA account. This account can be used for education, or just for general investment, with no taxes due on qualified withdrawals.

So don't overlook the benefits in the tax code if you have a new addition to the family! Contact us contact our office by phone at 408-879-9990 or by email at cpa@cpasllp.com for more details. You can also visit our website www.cpasllp.com for more details.