As the end of tax season inches closer — April 17 to be exact — many residents may still be pulling together their official documents and making appointments with certified public accountants.
Having children adds another dimension to filing and potentially more questions. We asked two local CPAs what parents need to know when it comes to filing taxes.
Be Prepared and Ask Questions
Once you have an appointment, make sure you bring your children’s Social Security cards and birth dates. Fill out forms with their full names. If you tell the CPA that your son’s name is Johnnie and it is really Jonathan, the form will get rejected.
“Just come as prepared as possible,” says Steven J. Graber, principal of Graber & Associates in Baltimore. If you do, “your CPA is going to love you.”
Graber also encourages clients to ask questions about exemptions or credits that may apply to their form. The CPA will be able to explain why they may or may not qualify. “Don’t be afraid to ask,” he says. “The Internet is out there. There are a lot of things you can learn. There are a lot of questions you can ask.”
New tax laws will take effect for the 2018 return and parents will notice a difference. The old child credit, in effect for 2017 returns, offers a $1,000 tax credit to parents for every child under the age of 17 for those making less than $110,000. The 2018 returns will offer a credit of $2,000 per child and available to those making less than $400,000.
So, a couple with three kids under 17 making $250,000 a year got no child credit in 2017 but will get a $6,000 credit for 2018. “That is going to be huge for people,” Graber says.
Coordinate with Kids
In the meantime, when your children are in college and have a side job, sometimes friends suggest doing their taxes online to get quick refunds. When the parents get their taxes done with a preparer, their returns get rejected because their child already filed a return.
“You have now lost potentially their dependency exemption,” Graber says. “You may have lost their [tuition] credits. There are tons of things you may have lost.”
While most claim tuition costs, there are potentially a lot of other expenses that you could put on your form, including books, for example, or a computer if it is required by the school, among others.
High school kids with jobs are also often encouraged to just file a quick return online which can result in a loss for everyone. “There are a lot of [tax-related items] you need to have some coordination with your kids about,” Graber says.
… And the Other Parent
Parents don’t need to just coordinate with their older children. Those who are separated or divorced must figure out who gets to claim the kids. Graber encourages parents to work together to save or get back some money. Look at who is going to get the bigger deduction and refund by claiming the kids. Any potential refund can be split voluntarily between the two.
For the parent who claims the child, their tax form will be used for financial aid applications. If college is fast approaching, parents may want to let the one with a lesser income claim the child.
The Affordable Care Act requires parents to have health insurance for their children. As a part of taxes, parents must prove they have plans in place and have paid for them.
Mary-Kay Leary, a partner with Fitzpatrick, Leary & Szarko, says parents should make sure their divorce agreement specifically states who will provide health insurance. “If they claim a dependent child on their return, they are responsible for making sure that child has qualified health insurance,” she says. “Doesn’t mean they have to be the one to provide it, but if the child does not have the qualified health insurance, that parent claiming the child is going to be charged the shared responsibility penalty for not having insurance.”
If childcare is required for your children, parents will want to bring proof to a tax preparer for a deduction.
Some employers also offer pre-tax dependent care flexible spending programs where employees may put up to $5,000 of pay into the tax free account. “A lot of people don’t take advantage of it,” Graber says. “[It’s] another great benefit for parents.” BC