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Good to Know: Claiming Dependents – Waste of Time or Great Way to Save on Income Taxes?

We lost the deduction for personal and dependency exemptions starting in 2018 under the Tax Cuts and Job Act. With the loss of the deduction, many taxpayers rightly ask, “Should I even bother documenting and claiming my dependents on my tax return?” That a reasonable question and the answer is… YES for many taxpayers. Claiming a dependent can STILL save thousands of dollars in income taxes. Here is just a few of the many tax savings opportunities for 2018 and later tax returns:

  • $2,000 tax credit for each dependent under age 17 (Child Tax Credit)
  • $500 tax credit for each dependent age 17 and over (Family Tax Credit)
  • Higher standard deduction – A Single or Married Filing Separately taxpayer can receive a higher standard deduction if they qualify to file as Head of Household. Only taxpayers that can claim at least one dependent can file as Head of Household.
  • Lower income tax rates – The Head of Household rate brackets increase more gradually than Single ranges and much more gradually than Married Filing Separately filers.

Bottom line – You may find that claiming a dependent will save thousands in taxes. You literally have nothing to lose – there is no tax penalty for having dependents.

Caveat – As with all tax information, review tax strategies with your CFP® Certificant, CPA, or other professional tax preparer before filing your return. Some of the tax savings ideas in this article are subject to adjusted gross income phase-out.