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.