Children And Dependents Taxes | Molen & Associates

Stay Ahead of Law Changes & Protect Yourself Against Being Audited: Corporate Transparency Act and Reasonable Compensation

How the new tax bill is changing the way you claim your children and other dependents

Taxpayers who claim dependents on their tax returns will be seeing some changes for the 2018 filing season. The passing of the Tax Cuts & Jobs Act (TCJA) included the removal of the personal exemption deduction as well as the doubling of the child tax credit.

The personal exemption deduction has been included in the tax code since the implementation of the Revenue Act of 1913. The deduction itself has varied over the years, beginning at $3,000 for individuals and $4,000 for married couples, into the most recent 2017 amount of $4,050 per person on the tax return, including parents, children and other qualifying individuals. For example, a married couple with two children would enjoy an exemption deduction of $4,050 per person for a total of $16,200.

This personal exemption deduction has been removed with the new tax bill, which is a big change for many filers. However, while the exemption deduction has been removed, the child tax credit has been doubled.

The child tax credit provides a tax credit per child under the age of 17 to taxpayers. If the credit exceeds a taxpayer’s liability, they may receive a portion of the credit as a refund. Eligibility for the credit depends on seven requirements, including the age of the child and the income level of the household.

Prior to the TCJA, the child tax credit was a credit which offset tax liability. A separate credit, the Additional Child Tax Credit, allowed for a portion of the child tax credit to be refundable if it exceeded tax liability. However, under the TCJA there is not an Additional Child Tax Credit separate from the child tax credit; rather, there is one credit that is refundable, subject to certain requirements.

The TCJA doubled the maximum child tax credit from $1,000 to $2,000 and makes up to $1,400 of the credit refundable. The only portion of the child tax credit that is indexed to inflation is the refund ability limit. Under current law, if the tax credit exceeds tax liability, taxpayers generally use an earned income formula to determine refund ability: 15 percent of income above $2,500, up to the full refund ability amount. For example, a family with $5,000 in earned income would be eligible for a refund of $375.

The exemption deduction and child tax credit changes are just a few of the many updates with this tax reform. To learn more about how the new tax bill will affect your filing this season, call our office today to have a free conversation with one of our tax professionals.

Carrolina Kizzee
Operations Department

The Molen & Associates Difference

Mike Forsyth

“Super helpful and timely. This is our first year with them and we look forward to trusting them with our taxes and business books for years to come.”

Caitlin Daulong

“Molen & Associates is amazing! They run an incredibly streamlined process, which makes filing taxes a breeze. So impressed with their attention to detail, organization, and swift execution every year. Cannot recommend them enough!”

Sy Sahrai

“I’ve been with Mr. Molen’s company for few years and I felt treated like family respect and dignity. They are caring, professional and honest, which hard to find these days. Love working with them.”

Gig Economy Taxation: a Detailed Overview

Gig Economy Taxation: a Detailed Overview Reporting Income as a Gig Worker Gig economy workers must report all income earned from their endeavors. This includes, but is not limited to: Earnings from part-time, temporary, or side gigs. Income not reported on...

Standard Deduction vs. Itemizing: A Comprehensive Guide for Small Business Owners and Self-Employed Individuals

Standard Deduction vs. Itemizing: A Comprehensive Guide for Small Business Owners and Self-Employed Individuals   As tax season approaches, one of the most significant decisions you’ll face as a small business owner or self-employed individual is whether to take...

Real Estate and Taxes: A Comprehensive Guide

Real Estate and Taxes: A Comprehensive Guide Real estate taxation is a multifaceted topic that encompasses various forms of taxes, including income tax, property tax, and sometimes even sales tax. Whether you’re dealing with personal or business real estate,...

Steps to Filing a Tax Extension

Is Filing an Extension Bad?   We get this question probably a thousand times a year. An extension is not inherently bad, it is truly personal preference. An extension will not increase your risk for an audit or red flag your return with the IRS. In fact, it is...

How to Pay Your Child From Your Business

How To Pay Your Children From Your Business Paying your children through your business can be a strategic way to manage your business's taxable income, while also providing your children with income and potentially teaching them about the value of work.  While it is a...

Tax Tips for Newlyweds

Tax & Financial Tips for Newlyweds in Houston Marriage is a significant milestone that not only unites two individuals in partnership, but in most cases, also merges their financial and tax situations. For newlyweds in Houston, understanding the tax implications...

Self-Employment Taxes: A Deeper Dive

Self-Employment Taxes: A Deeper Dive Self-employment taxes are a critical component of the tax system in the United States, impacting individuals who work for themselves. Understanding the nuances of these taxes can help self-employed individuals plan and manage their...

Education Tax Benefits: Maximizing Savings with Credits and Deductions

Education Tax Benefits: Maximizing Savings with Credits and Deductions Navigating the complexities of tax season can be daunting, but for those bearing the costs of higher education, there are valuable tax benefits that can ease the financial burden. Among these are...

How to request Individual Penalty Abatement

How to Request Penalty Abatement Penalty abatement is a great way to help reduce your client's tax debt. Here's how you can request apenalty abatement from the IRS. Let’s say you’ve determined that your client is eligible for a penalty abatement to help reduce their...

Understanding the Child Tax Credit for 2023

Understanding the Child Tax Credit for 2023 The Child Tax Credit (CTC) is a significant provision in the U.S. tax code designed to offer financial relief to families with qualifying children. As we navigate the 2023 tax year, it’s crucial to understand the current...

Request an Appointment Today

12 + 10 =

Call us at

Pin It on Pinterest

Share This