If you ever want Can get their children around the house to help more, at least they do their part when it comes to tax time. Which is appropriate. You give shelter to your children; At the very least they can act as tax shelters.
In other words, play your cards properly, and your children can help you reduce your tax bill.
Not so long ago, the Tax Cuts and Jobs Act of 2017 brought a lot of changes in the tax code. So if you are starting to look before tax day, here are some big child-related tax credits that you might want to keep in mind when filing your tax:
- child tax credit.
- Child and Dependent Care Credit.
- Earned Income Tax Credit.
- Recovery Waiver Credit.
- Adoption Tax Credit.
- Education tax credit and tuition and fee deductions.
- 529 accounts.
child tax credit
Say goodbye to using your children Tax deduction, But one of the most significant changes that came with the Namaste, Tax Cuts and Jobs Act to use them as tax credits.
“If you are able to claim your child as a dependent, you may be eligible for a tax credit, which is actually better than a tax deduction because it reduces your taxes for the dollar, “Lisa Green-Lewis, a Certified Public Accountant, TurboTax spokesperson and US News contributor.
“The child tax credit, which is available to a dependent child under the age of 17, was raised to $ 2,000. It was previously $ 1,000,” says Green-Lewis.
She says that if you are a child filing jointly and cannot earn more than $ 400,000, you can claim a child tax credit. If you are a single parent, you can earn up to $ 200,000.
Green-Lewis also adds, “If your dependent child is over 17, you may still be able to claim a new other dependent of $ 500.”
To prevent disappointment when you prepare your taxes, please keep in mind that you are filing your taxes for the year 2020. This means that if you have a 17-year-old who turns 17 before January 1, 2021, then your teenager is not eligible for a $ 2,000 credit.
If your 17-year-old has turned 1 on January 17 or any day in 2021, your teenager is eligible for a $ 2,000 child tax credit.
Child and Dependent Care Credit
“Not to be confused with the child Tax creditIf you pay for child care, child and dependent care credits can help you, ”says Green-Lewis.
She says the credit is a dollar-to-dollar shortfall of your taxes, which, depending on your childcare expenses, is $ 3,000 ($ 1,050) of $ 3,000 for one child or $ 6,000 for two or more children. ($ 2,100).
She says, “Credits range from 20% to 35% of your childcare expenses for your income and all qualifications such as nursery school, private kindergarten, after-school programs, and day care, depending on your income. “
Earned income tax credit
If you have a low to moderate income – for example, $ 41,756 a year or less for single parents with a child – you may qualify for the Earned Income Tax Credit.
“If you’re a parent, this heavy credit can be up to $ 6,660 on your 2020 taxes if you have three or more children,” Green-Lewis says. “It is worth noting that the earned income tax credit is unlike other tax credits in which it is refundable, so you can still get the difference as a tax return if the credit is more than this You are taxed. “
There is a particularly important provision to be aware of if your income is reduced in 2020, says Green-Lewis. She cites the Coronavirus Response and Relief Supplemental Appropriation Act in 2021, which was signed into law on December 27, 2020.
“This provision allows individuals a special lookback rule to use their earned income from 2019 to determine the refundable portion of their earned income tax credit and child tax credit in 2020, because of their reduced 2020 income They can reduce the amount of credit. Eligible for this, “says Green-Lewis.
Recovery rebate credit
As everyone remembers, taxpayers received incentives due to the epidemic in 2020.
“If you have received the first or second incentive amount for yourself or your spouse, but you have made an additional $ 500 for your qualifying child under 17 in your first incentive check, or in your second provocative check for under 17 years. Have not received an additional $ 600 for a child. When you file your 2020 taxes, you may be able to claim the additional incentive as a recovery rebate credit, ”says Green-Lewis .
Of course, when you are preparing your taxes, do not confuse your dates. Because that second excitement occurred around the new year, many taxpayers, if they had a Second incentive check, Probably received it in 2021.
Adoption Tax Credit
According to the North American Council on Adoptable Children, there is a federal adoption tax credit of up to $ 14,080 per child for finalization in 2019.
According to Christina Taylor, Credit Karma Tax’s operations lead, it can help offset the adoption expenses of a child, in addition to a stepchild.
“The credit for adoption is the legal fees and any travel or meal fees you have as a result of the adoption process,” Taylor says. “If you are adopting a child with special needs, you can claim the entire adoption credit, even if it exceeds your expenses. Keep in mind that this credit is limited to your tax liability.”
“If your child is in college, there are two credits you can potentially claim,” says Taylor, the American Opportunity Tax Credit and the Lifetime Credit Credit.
“AOTC can be taken for four years, while LLCs have no time limit until your child qualifies in higher education courses,” Taylor says.
American Opportunity Tax Credit Includes 100% of eligible tuition and required fees up to $ 2,000 as well as a 25% share of the next $ 2,000, converting to a total maximum credit of $ 2,500 per year. Credit for lifetime learning Offers 20% credit up to $ 10,000 in eligible expenses. If you are filing jointly, you must earn less than $ 59,000 or as little as $ 118,000 as a single filler, although up to $ 69,000 credit is available for singles and $ 138,000 for joint filers. .
Taylor also notes that you can claim tuition and fee deductions.
“This deduction can be claimed instead of education credits, and may be more beneficial than LLCs that AOTC cannot claim,” says Taylor.
The taxpayer can save $ 2,000 to $ 4,000 annually in the low- or middle-income range.
Use your children’s 529 account for college only and only
Sean Chowdhury, a lawyer in San Antonio, whose firm focuses on business and tax law, says a major change in the new tax law is that funds from the 529 plans be used for things other than secondary education Can. “$ 10,000 per beneficiary per year can be withdrawn from the 529 savings plan, Income tax free, If used for tuition expenses in private, public and religious K-12 schools, ”he says.
“These plans are front-loaded, because the development tax is deferred, and is usually at a lower rate than a student’s parents or grandparents,” Chaudhary said. “The amount can be withdrawn to pay the principal or interest on a student loan of a specified beneficiary or their brother. The amount of disbursement is limited to $ 10,000 lifetime to repay the loan of any individual. Payments with these funds Interest incurred does not qualify for student loan interest. Deduction. “
According to Chaudhary, you can use any remaining 529 money to pay off old student loans. It is part of the recently passed Safe Act in Congress. The Act is actually aimed at retirees, but participating in it is a provision for young adults.
“The Secure Act allows families to pay student loans up to $ 10,000,” says Chaudhary. “This is a one-time amount in the student’s lifetime.”
It also shows the dark spirit of the Congress. After graduating in college, who has anything left in the 529 scheme?