Navigating the intricacies of tax preparation can be daunting for individuals without the professional help of a tax preparer, as Glenn Sandler, CPA, knows all too well. That's why he founded G.I. Tax Service – home of the affordable $99 Tax Return and the stated motto, No Dime Left Behind®.
For years, parents were able to claim their children as dependents on their tax returns, resulting in savings. However, beginning with 2018 tax returns, this dependent exemption has been removed.
However, that doesn't mean that there are no tax credits that parents can take advantage of to help reduce their tax burden!
Below we present an overview of the tax credits available for a parent or parents with dependent children.
There are many criteria that must be met for a parent to qualify for the credit, which we don't go into in great detail, but most parents with kids find it advantageous to have a tax professional prepare their return to ensure that they receive all the tax credits they qualify for. We will also share tax deductions.
Income Tax Deduction vs. Tax Credit
Rather than a tax deduction, which reduces the amount of income on which you must pay tax, a credit comes right off the amount of tax you may owe.
Child Tax Credit
Parents can still claim a tax credit for each qualifying child they have. To qualify for the credit, the parent must earn no less than $2,500 or more than $200,000 (or $400,000 if parents are filing jointly.)
This tax credit is worth up to $2,000 per qualifying child.
〈 A qualifying child must be under 17 years old at the end of the tax year.
〈 The child must be related to the taxpayer –biological son or daughter, stepchild, foster child or adopted child; or grandchild meeting the same criteria.
〈 The child must have lived in the taxpayer's home during the tax year for more than six months
〈 The taxpayer must provide more than half of the child's support. (As opposed to a divorced spouse who pays less than half the child's support.)
Child and Dependent Care Credit
This care credit can be claimed regardless of one's income, as long as the taxpayer worked during the tax year. (The credit will become smaller as the income becomes larger, however.)
If children under the age of 13, and/or adult dependents of the taxpayer who are unable to care for themselves have been placed in daycare while the taxpayer and spouse work, the taxpayer is eligible for this credit.
Adoption Tax Credit
Someone who adopted a child in the tax year may qualify for this credit if their income meets the criteria. If the child has special needs, the amount of the credit is larger.
Earned Income Credit
The Earned Income Credit, or EIC, is available to people with low to moderate incomes who work. It is not necessary to have children to receive this credit, but since it's an often-misunderstood credit we thought we'd include it here.
Many taxpayers fail to apply for the EIC because they don't realize that the amount they can earn and still receive the credit changes every year. If they weren't eligible one year, they may be eligible the next.
That's why it's always important to check with your tax preparer to see if you qualify for this credit.
Parents can take advantage of deductions as well.
Self-Employed Health Insurance Deduction
Individuals who are self-employed, and who are also parents who pay for health insurance for their children (up to the age of 27) can deduct the cost of the premiums paid – whether for medical, dental or long-term care.
The nice thing is that adult children, under the age of 27, don't have to be dependents for the parent to be able to use this deduction.
The caveat is that the taxpayer or his/her spouse must not be eligible for an employer-paid healthcare plan.
Don't leave a dime behind when it comes to claiming all the tax credits and tax deductions available to you. Contact G.I. Tax Service to help prepare your taxes today.
G. I. Tax Service was founded in Melbourne, Florida in 2013 by Glenn Sandler, CPA.