How Your Family May Be Affected This Tax Season
Raising a family is one of the more joyous experiences in life. However, raising kids can become expensive for most families. Of course, many parents rely on some of the tax breaks they can receive when tax time rolls around. With many of the tax law changes from the reform, many are left wondering how they might be affected.
Changes To Consider
There are many changes to consider. Below are some of the most important changes to child credits and deductions that the average family will want to understand when filing their taxes this year and before they gather all of their tax documents. Be sure you have all of your W-2s and submit your 1099 online for the best results.
Personal Exemptions Are No More
Before the rollout of the new tax laws, personal exemptions allowed people to lower their taxable income amounts. Taxpayers were allowed to claim the personal exemptions for themselves and their dependents. Now, parents can receive a standard double deduction. The increase went up to $12,000 from $6,350 for those filing single and up to $24,000 from $12,700 for joint filers. Whether the double standard made up for the lack of personal exemptions depended on a variety of factors including how much income you have, your filing status and the number of kids you have.
Higher Child Tax Credit
The best part about the tax reform changes is that the child tax credit doubled from $1,000 to $2,000. The income level where this tax credit starts to fade out raised to $200,000 for single filers and $400,000 for married filers. For tax filers with two children, they could lower their taxable income by $4,000 over $2,000 in previous years. If you do not owe any taxes for the previous year, you can still get a refund for the child tax credit worth up to $1,400. This is because it is a refundable tax credit.
Adult Dependent Credits
When you have older kids, you may wonder if there are any credits you can get. For any adult kids that you still support and that live at home, you may be able to get up to a $500 credit for them. Adult dependents are typically children that are students, under the age of 24, disabled adult children or elderly relatives or parents. Keep in mind, the American Opportunity and Lifetime Learning Credit Tax Credits for college kids are still intact this tax year under the new tax reform laws.
More Use Of The 529 Plans
Before the implementation of the reformed tax laws, money from 529 plans was only able to be used towards paying the cost of higher education. This was true unless you wanted to pay penalties and taxes on the funds. Now, people can withdraw up to $10,000 each year untaxed. The funds can be used to help pay for tuition for kindergarten through 12th-grade private school education. Because of the law change, parents may be able to save money in a 529 as a way to help pay for private schooling. Funds can be saved before or after your child is born.
Changes To Kiddie Tax Rates
This tax is one that gets applied to the unearned income of minors. It may include dividends and interest from investments they have received from family members or their parents. Parents may have given them the money by transferring funds to the UTMA or Uniform Transfer to Minors Act. It is a custodial account that previously was taxed at the marginal rate of the parent's tax bracket when it reaches over $2,100. Now, it will be taxed separately and subject to the rates applied to estates and trusts. This tax rate has four separate income brackets that range between 10 and 37%.
As you can see, many tax changes affect most families across America. It is important to understand what they are and how they will change how you file your taxes. It is always best to consult with a professional tax preparer to ensure your taxes are prepared accurately.