The article below is up to date based on the latest tax laws. It is accurate for your 2017 taxes, which you will file by the April 2018 deadline. Learn more about tax reform here.
We all know that supporting a dependent can cost a bundle, but here are four things you may not know about dependents that will help you at tax-time.
Related and non-related dependents save you money. Even though you may be shelling out thousands for food, a place to live, and care for your dependent, the IRS gives you tax breaks for your dependent child, relative, or non-relative in the form of tax deductions and tax credits. Although tax credits reduce your tax liability dollar for dollar and tax deductions reduce your taxable income, both tax credits and tax deductions can save you money on your taxes and boost your tax refund.
There are multiple tax credits and deductions for your kids. Your kids are expensive, but take comfort in knowing at tax time you can reap the benefits of some tax credits and deductions that really add up and increase your tax refund if your child meets the criteria for a dependent. You may be eligible for the Child Tax Credit worth $1,000, Earned Income Tax Credit up to 6,318 for a family with 3 or more kids, the Child and Dependent Care Credit worth up to $2,100 for 2 or more kids, and the dependent exemption of $4,050. Not to mention, education credits available if you are paying for your college student.
Tax credits and deductions can extend to relatives and non-relatives. You probably are not surprised that you get some type of tax break for your kids, but if you provide over half the support for someone, you may be able to claim them as a dependent and take some valuable tax deductions and credits. Relatives like your mom, dad, grandparents, grandchildren, or other blood relatives don’t have to live with you, but non-relatives like a boyfriend or girlfriend have to live with you the entire year in order to claim them. If your relative or non-relative qualifies as a dependent, you may be able to claim a dependent exemption of $4,050, the medical expense deduction for their medical costs you paid, and education credits like the American Opportunity Tax Credit worth up to $2,500 for college courses you paid for them.
Social security numbers are required. If you had a new baby this year make sure you applied for their social security number and that you have it when you file your taxes. In order to reap the benefits of the tax credits and deductions mentioned, you need to have their social security number. If you support your relative or a boyfriend or girlfriend and are claiming them as a dependent you will also need to have their social security number when you file your taxes.
We still have a little more time before the year ends, but knowing these tips can help you get ready for tax-time and realize the tax savings for your dependent that may be coming your way.
Don’t worry about knowing these tax laws. TurboTax will ask you simple questions and give you the tax deductions and credits you are eligible for based on your answers.