I have spent hours reviewing the Tax Cut and Jobs Act (TCJA) and the conclusion that I have come to is that it is far from simple. Anytime I face such an overwhelming change in the way that I am used to doing things, I tend to dig in my heels and make it far more difficult than it needs to be. Ask my co-workers about the time the paperclips in the office got switched from smooth to non-skid. Not one of my finer moments, but I can promise you we never had non-skid paper clips again. In an effort to be more mature and pliable, I present the following information regarding the non-existent personal exemption and how it can impact your tax return this year.
The TCJA has reduced the personal exemption for tax years 2018 – 2026 to $0.00 and doubled the Standard Deduction amount for each filing status.
Although the exemption amount is now $0.00, there are still benefits to claiming dependents. The Child Tax Credit (available until the year the child turns 17) has been doubled! For a limited time only, you not only get a $2,000 tax credit per child, but you can also make more money and still qualify for the credit. But wait! There’s more! Beginning in 2018 there is a $500 tax credit for qualifying dependents other than children.
My husband and I have 3 children, two that are completely independent and one that turned 17 in 2018. In 2017, our total deductions (standard deduction – $12,700 & 3 personal exemptions – $4,050 each) totaled $24,850 and we received the child tax credit of $1,000 for the last time. In 2018, my husband and I will still be claiming our 17-year-old and the numbers are not as pretty. We will get $24,000 for the doubled standard deduction and the kid will qualify for the $500 tax credit as an “other qualifying dependent.” For those of you playing along at home, no your math is not wrong; our family just lost $1,350 in deductions.
My free advice this Friday – Never buy non-skid paper clips and check out the interactive tool on the IRS website to figure out which credit your dependent qualifies for.
Check back next week for free advice about standard versus itemized deductions, it is a whole new game!