How Does Having a Child Impact your Tax Return?
It is March and that means you have started thinking about preparing your taxes for 2018, or, you should have. April 15th is right around the corner and, if you are like me, you probably want to take advantage of any tax credits available to you. The Tax Cuts and Jobs Act made sweeping changes to the tax code including doubling the standard deduction, taking away some other deductions, and doubling the child tax credits.
Simply put, if you qualify for a tax credit, rather than functioning like a deduction and decreasing taxable income, a tax credit is applied directly against your tax bill. This year, the child tax credit is up to $2,000 per child and can be claimed by a parent or guardian with qualifying incomes. As with many tax benefits, these are subject to phase outs. The calculation is done on schedule 8812 of the return.
While the child tax credits are great for families, the tax reform eliminated personal exemptions, which reduced taxable income by $4,050 (in 2017) for you, your spouse, and any dependents. A family of 5 could deduct $20,250 from taxable income under the previous laws, and still qualify for a child tax credit of $3,000.
In addition, the tax reform keeps the Child and Dependent Care Credit, which amounts to a percentage of the amount you spend on child care.
There are multiple benefits of claiming your children and you should talk to your tax advisor and make a plan to take advantage of the options available to you. No one likes leaving money on the table, so go and talk to an advisor soon. April 15 is coming fast. Be prepared!