Rearing your children and preparing them for the world is a time-consuming and expensive affair. For this reason, when you are filing your taxes, you should do everything in your power to take advantage of all of the credits and deductions at your disposal. If you are intimidated by the code’s, credits and forms a quick internet search to find a tax accountant near me can help. The newly enacted tax code passed by Congress in 2017 will alter how you file your taxes in 2019. Below, we will discuss some of those changes and give tax tips for parents.
The Dependent Exemption Has Been Replaced
Under previous tax laws, a parent could deduct $4,150 in taxes for each child up to 19 (and up to 25 for children currently attending college). With this new tax code, this will no longer be the case. That said, the doubling of the standard deduction will likely offset personal exemptions. For example, if you are single with kids and merit a head of household deduction, your standard deduction might increase from $7,000 to $13,500.
Child Tax Credit
The Child Tax Credit alterations were enacted to supplant the dependent credit. These include doubling the amount of the tax credit from $1,000 per child to $2,000 per child. A child qualifies if:
- They are younger than 17 by the end of the year
- They are your birth child, stepchild, foster child, sister, brother, grandchild, niece, or nephew, and live under your roof
- Claimed as a dependent on taxes
- A citizen of the United States, national, or resident alien
- Have resided with you for more than six months
Child and Dependent Care Credit
If you paid a person to care for or watch your child so that you and your spouse could work, go on a business trip, or look for work, you might qualify for a child and dependent care tax credit. You are eligible if:
- The child care expenses are for children under the age of 13 by year’s end
- The childcare took place so you could go to work or look for work
- You and your spouse received income from work during the year
If you satisfy these conditions, thoroughly read through Form 2441 instructions in order to file for this credit.
Adoption Tax Credit
If you apply for an adoption tax credit, then some, if not all, of those costs may be offset, though income limits do apply, and your claims are limited to a specific amount per child. Expenses that do apply to this credit are:
- Related meal and travel costs.
- Court and attorney
Earned Income Tax Credit
If you and your spouse generate an income but it’s not a hefty amount, you might qualify for the earned income credit. The size of this credit is dependent upon your income and the number of children you have. This earned income credit could reduce your tax bill into a refund. If it applies, it’s often quite substantial.
Student Loan Interest Deduction
Parents of college students may be able to deduct interest payments on some student loans, possibly lowering the total amount of taxable income, as well as the tax bill. For student loans to be deductible, they must come from a qualified lending institution, and your student must be enrolled at least half-time in a degree program.
Self-employed Health Insurance
By law, self-employed parents are required to pay for their family’s health insurance. Yet, they can typically deduct the entirety of the health insurance premiums paid for their children who are younger than 27. Premium exemptions include medical, dental, and long-term care. These deductions may not surpass the year-end figure made by your business.
Higher Education Tax Credits
If you have a student in college, there are two credits that parents are eligible to claim for higher education. These are:
- The Lifetime Learning Credit – Has no limits as long as your child is enrolled in higher education courses
- The American Opportunity Tax Credit – Can be used for up to four years
Qualified expenses include:
- Books and other materials
Transportation, room, and board do not qualify.
Raising children to be responsible citizens is a difficult task in and of itself. Having to clothe them, feed them, and take care of their various needs makes this job exponentially harder. Fortunately, when you are filing taxes, there are opportunities to earn credits for this civic duty. Be sure to do your research so that you do not miss out on great tax savings like those presented in Form 2441.