Deduct your medical expenses
The tax bill also lowered the threshold for deducting unreimbursed medical expenses, and that change was retroactive to 2017. You can now write off out-of-pocket health care costs that exceed 7.5% of your adjusted gross income, vs. the previous 10% cut-off for many filers. That's still a high bar, but doctor and hospital bills for the birth of a child could put you over the top. This lower limit is effective through 2018 and then reverts to 10%.
Open an FSA to help with daycare costs
A new child also opens a tax-saving opportunity at work. Parents can set aside up to $5,000 in pre-tax money in a dependent care flexible spending account and then use those funds to pay for eligible childcare costs. You can't double dip and also claim the child and dependent care tax credit for the same funds, but with the average day care bill topping $10,000 a year (and the typical nanny nearly three times that expensive), chances are you can use both breaks.
Remember, though, that this is a use-it-or-lose-it account, so make sure to claim the full amount every year.
Maximize a 529 plan
It's never too early to plan for your new child's education costs, and tax reform has sweetened a popular tax-smart way to save. You can use a 529 state college savings plan to pay for private elementary and high school costs as well as college. You can't deduct your contribution on your federal tax return, but more than 30 states and the District of Columbia offer local tax breaks. No matter where you live, your money grows tax-free and withdrawals for qualified education expenses are tax-free too.
If you live in a high-tax state, the new tax rules make 529s even more appealing. Now that you can deduct no more than $10,000 in state and local taxes on your federal taxes, you have even more incentive to cut your state income tax bill, and a 529 can be one way to do that. In New York, for example, married couples can deduct up to $10,000 in 529 contributions; the max is $10,000 in Michigan, and $20,000 in Illinois.
“Literally start a 529 the day the baby is born," says Thompson, “especially if your state allows a deduction."