To help offset the loss of itemized deductions, Congress has increased the child care credit from the current $1,000 to $2,000 per qualifying child under age 17. In addition, a $500 credit is provided for certain non-child dependents.
NOTE: Thus, if your parents are your dependents, you may be able to claim them and take a $500 credit. It may not be much, but it is better than a stick in the eye.
Even better up to $1,400 of this credit is refundable for each qualifying child. This means that if you didn’t owe enough taxes, you can get this excess back as a refund. This is designed to especially help poorer people.
What Congress gives they tend to take back. This credit phases out for single taxpayers earning over $200,000 and for married filing joint taxpayers who earn over $400,000. In prior law, this credit phased out at about $100K; thus, it is now available to many more people especially the upper middle class.
Sandy’s opinion: While I do like legislation that is pro-business, I never thought it was good tax policy to simply give credits to people to have more children. This doesn’t create jobs or improve the economy and is not congruent with the focus of this tax legislation, which is to stimulate business. This is an example of a political move that doesn’t have much economic or tax sense. It was put in, however, to help ameliorate the detrimental effects on the middle class of eliminating exemptions and itemized deductions. Frankly, I would have preferred to have either allowed entertainment deductions by small business or to bring back the loss carry back for new small, startup businesses. Any of these proposals would have been more congruent with the intent of the new tax law, I would have even preferred Ivanka Trump’s proposal to allow for a child care deduction.
Next up, I will be examining the limitations on state and local tax deductions and discuss how this might affect you. I will also discuss potential ways to possibly get around this limitation that I think everyone will find interesting. So stay tuned.
All content on this site is the property of Taxbot, LLC and/or Sandy Botkin. You may link to any article that you wish, or share via the social media buttons below. However, please do not copy articles or images for use on other sites without express written permission.