The$e Darn Kid$

Kids are expensive.  Very expensive.

Don't get me wrong.

They are amazing.

But oh, are they expensive.

Mr. DDA & I just had a conversation yesterday that started with this line: “Can you imagine how much money we’d have if we didn’t have kids?” 

Not that I would ever trade the kids for the money, but the old saying is very true.

“No matter how many kids you have, they cost you everything you’ve got.”

As expensive as they are, having kids does have its advantages.

Adorableness all over your house....

An excuse for Mommy to push a stroller around Wal-mart everytime she goes.

An excuse for Daddy to play with his Optimus Prime toy from 1986 again.

But there are even some financial advantages that come with having the little ones running around your home.

Especially when it comes to your taxes. (Though I wouldn’t recommend having them for that reason alone.) 

And even though it’s a drop in the bucket compared to what you actually spend – it helps.

That being said, do you want to know how to use those kids to maximum-tax-advantage?

Then, that's what I'm here for....

We all know daycare costs are through the roof these days.

But did you know that you can lower your tax bill by opening a Flexible Spending Account. 

I’ve touched briefly on this before, but if you have a child in daycare and have access to an FSA – you MUST open one. 

Let me explain.  (In my head, I always say that sentence with a Ricky Ricardo accent….  You probably should too.  It'll make both of us feel less crazy.  And, really, isn't that the point?)

Joe & Jane make a combined $70,000 a year.  They have one child, Justine.  They pay $5000 per year in child care for Justine. 

Option 1:  Get a 20% tax credit for child care costs.  (Credit = reduces, dollar for dollar, what you owe in taxes.)  $5000 in costs translates into a $1000 credit, right?  Nope.  It’s actually limited to $3000 in costs, regardless of what you pay, so your maximum credit, aka tax savings, is $600. 

Option 2:  Open an FSA and have up to $5000 deducted from your paycheck.  This money is pretax meaning you never, ever, ever, get taxed on that $5000 you have earned.  Joe & Jane spend $5000 in childcare, which is the maximum you can have deducted, so they elect to have the full $5000 set aside.  Their tax bracket is 25% giving them a tax savings of $1250.  Double Option 1!!!

This is simple math.  $600 in one hand; $1250 in the other.  Simple way to save some cash, but yet many employees don’t take advantage of this benefit. 

Flex Spending Accounts run calendar year, but I know a lot of employers do their benefit packages in July – hence why I am posting this now.

It can be confusing, but it’s worth the trouble.  Talk with your HR Representative as soon as possible to find out if the option is available to you and how to take advantage of it as soon as possible.