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Tax Tip Tuesday: Tax Tips for Parents

By Edward “Ed” V. O’Neal, Vice President and Manager, Retirement Plans

If you are a parent of young children, teenagers or other dependents, tax season can often be a frustrating exercise of trying to understand and effectively utilize key tax credits and deductions.  Additionally, the recent enactment of the Tax Cuts and Jobs Act (TCJA), which became effective on January 1, 2018, could have an impact on the tax planning strategies for many parents and families.  Here are a few items from TCJA that could be important to tax planning for parents:

  1. TCJA included significant changes to tax deductions, tax credits, personal exemptions and individual income tax rates. While the standard deduction was doubled, and income tax rates were generally lowered, personal exemptions and most itemized deductions have been eliminated – including the popular exemption for dependents often used by parents.
  2. There continue to be a number of tax credits for parents which can lower your tax bill dollar-for-dollar, with the more popular ones including:
    • Child Tax Credit for families with children under the age of 17 and meeting certain household income levels. This tax credit received a significant expansion under TCJA increasing the maximum credit amount to $2,000 per child (up from $1,000 in 2017).
      1. TCJA also established a new tax credit of up to $500 for dependents who do not meet the Child Tax Credit definition of a qualified child (i.e. under the age of 17).  Under previous law, no credit was available for dependent children who were age 17 or older.
  1. Though tax deductions and exemptions have been limited under TCJA, there are still a few options available that could help parents reduce taxable income, including:

Changes created with the TCJA will require parents and families to rethink their tax planning strategies for 2018, with careful consideration of the new tax rates, enhanced standard deductions, new limits on exemptions, and the impact of key tax credits on your ultimate tax obligation.

Benjamin F. Edwards & Co. does not provide tax advice. Please consult with your tax advisor before implementing any tax strategy to fully understand the qualification requirements and impact on your personal tax situation for 2018 and beyond.