As people have settled into the tax year, it is easier to examine the new Tax Cuts and Jobs Act (TCJA) that was passed in December 2017 and went into effect the beginning of January. This new tax bill includes a myriad of changes that affect young families. Here are four of the most important takeaways:
LARGER STANDARD DEDUCTIONS
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Beginning in 2018 and continuing through 2025 when they phase out, TCJA nearly doubles the past standard deduction amounts. Prior to the passage of this bill, the singles deduction was $6,350. This amount is now up to $12,000. Joint-filing married couples had been sitting at a deduction of $12,700 in 2017 but are now at $24,000. Head of households increased from $9,350 to $18,000.
HIGHER CHILD TAX CREDITS
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The amount of individual child tax credits also increased drastically under the new TCJA. Prior to the new bill, the individual credit was $1,000 per child. Under the new rules, families can now claim $2,000 per child under age 17. In a nutshell, the new TCJA effectively doubled the child tax credit. This is a huge boon for those families with multiple children. The incomes at which this credit is phased out also saw a big jump, making more families eligible for the credit. In 2017, the adjusted gross income (AGI) limit for a joint-filing couple was only $110,000 while the new rules push this amount to $400,000. By almost quadrupling the AGI limit, more people will be able to take advantage of this child tax credit.
The new rules also include a provision for a $500 dependent credit. This would apply to those dependents who do not qualify for the standard child tax credit of $2,000. An example of a qualifying dependent would be a college student under the age of 23 or a non-child relative living with you.
529 PLAN LIBERALIZATION
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As a permanent rule not scheduled to end in 2025, this new regulation allows parents to withdraw up to $10,000 annually federal-income-tax-free if used as tuition at a public, private, or religious at the elementary and secondary level. This can even be used on tutoring services.
Because raising kids is expensive, it is essential to ensure that you give yourself every tax advantage at the end of the year. By taking advantage of all of the deductions and child-related credits, you will make the most out of the TCJA.
Sometimes managing everything can be a bit tough with a family, and so why don’t you let us take some of that burden off of you? Our experts are best able to help you and your family, ensuring that you will get the most from your taxes every year. Meaning you’ll be able to spend more time with those you love, and you’ll be saving as much money as you can so you can protect their futures.