Once you are a parent, you never stop being a parent. You stayed up with your kids when they had the flu, helped them study for the ACT, cheered them on at their graduation. You have been there for their highs, lows, and everything in between. You will continue to care, love, and support your children for the rest of your life.
But will there ever be a time they can fly away from the nest?
According to the federal government, the answer is yes!
From the time your children were born, you claimed them as dependents on your federal and state taxes, which has saved you money on your taxes over the years. The decision to claim children as dependents rests on a myriad of factors, let’s see how those could affect you this year.
The federal government allows you to claim dependent children until they are 19. This age limit is extended to 24 if they attend college. If your child is over 24 but not earning much income, they can be claimed as a qualifying relative if they meet the income limits and/or if they are permanently disabled. It is important to know that there is no age limit if your child is permanently disabled.
Other factors that contribute to your ability to claim your children as dependents are:
Still unclear if you can claim your child as a dependent? The IRS has a questionnaire here you can use to find out. Simply answer a few questions and the IRS will tell you whether or not you are eligible to claim a person as your dependent on your taxes.
For many families, the longer they are able to claim their children as dependents the better it will be. But the new Tax Cuts and Job Act has changed the way parents claim dependents. Prior to 2018, parents were able to receive a personal exemption that reduced taxable income. For example, in 2017, a married couple filing jointly could take a $4,050 exemption for themselves and each dependent. The new tax law has suspended that exemption benefit from 2018-2025. This means that parents will need to use other tax exemptions to help make up for the loss of the child exemptions.
Since the exemption for dependents is suspended until 2025, parents have to look for other tax credits and deductions that can help them on their tax bill. Here are a couple of credits to keep an eye on.
This is just one of the many examples of how our comprehensive tax planning creates value for our clients. See other important tax planning topics on our website, here.
The new Tax Cuts and Jobs Act has changed the way parents will claim dependents in 2018. Therefore it is important to understand the nuances of the IRS qualifying system, exemptions that may or may not be applicable, and the other forms of tax credits available to you.
If you want personal advice on how to claim your dependents, contact us!