5 tax tips for dads on Father's Day 2018
Sunday, June 17, 2018
Happiest of days to all the dads out there. And thank you Sonora Dodd.
Dodd was raised by her father after her mother's death during childbirth. While listening to a sermon at church on Mother's Day, Dodd thought about all her father had done for her and her siblings and decided fathers should have a day, too.
Because Dodd's father was born in June, she encouraged churches in Spokane, Washington, where she was living, to honor fathers that month. The first Father's Day was celebrated in Spokane in on June 19, 1910.
In 1924, Dodd's idea got a national boost when President Calvin Coolidge made Father's Day a national event to "establish more intimate relations between fathers and their children and to impress upon fathers the full measure of their obligations."
Almost 50 years later, Father's Day officially became a permanent holiday when in 1972 President Richard Nixon signed the public law making the day permanent.
Dads by the numbers: There are 72 million dads in the United States, according to the U.S. Census Bureau's latest complete data.
Those fathers, dads, pops, papas or whatever term of endearment you use for your pater familias earn this week's By the Numbers honor.
The country's statistical information collection agency also notes that in 2017 there were 2 million single fathers, which it classifies as dads where no spouse is present. These single pops were taking care of their younger than 18 who lived with them.
That's a lot of Father's Day gifts!
Regardless of whether your raising children with a partner or spouse or are own your own, my gift to all the dads out there on this Father's Day 2018 is these five tax tips. You can thank me later when your fill out your returns!
1. Claiming dependent kids: While parents no longer get to claim their children as exemptions on their tax returns, the Tax Cuts and Jobs Act (TCJA) left in place the tax code rules for determining a child's dependent status in connection with other tax breaks.
There are 5 tests a child must meet to be your tax dependent, including the youngster's:
- Relationship to you, such as the more common son, daughter, stepchild or foster child. But there are other relationships that count — sometimes siblings can qualify — so check the rules (highlighted in the linked post above) thoroughly if your family is not traditional.
- Age, which generally must be younger than 19. Some exceptions are allowed so, again, check the rules.
- Residency, meaning the youth must, in most cases, have lived with you for more than half of the tax year. Rules. Repeat.
- Support, which in this case is not the expenses that parents incur in taking care of the child, but rather the youth's earnings.
- Joint filing status, meaning the young person must not file a joint return for the year unless that 1040 is submitted simply to claim a tax refund.
2. Getting tax credit for your children: One of those tax breaks for qualifying dependent children is the child tax credit. Since it's a credit, it offsets the taxes you owe dollar-for-dollar.
Under the prior tax law, the child tax credit (CTC) was $1,000 for each eligible youngster. The TCJA doubled that to $2,000 for each qualifying child. A qualifying kiddo is one who meets the tests noted in tip #1.
If you're a single dad (or mom, but since it's Father's Day, we're giving pops first consideration) because of divorce and don't have primary custody of your kids, to claim the CTC your ex-spouse who is the custodial parent must agree and assign that right (via Tax Form 8332) to you in the years that you've agreed to transfer this tax break.
Also remember that the CTC is one of those claims that will slow down the issuance of any federal tax refund you may be due.
3. Paying child support: Speaking of divorce, while the TCJA does change the tax treatment of alimony beginning in tax year 2019 — main change is that these payments are no longer tax deductible for the payers and the recipient ex will no longer count alimony as taxable income — it didn't alter child support.
Payments made by a divorced parent specifically to meet the needs of his or her children remain tax-free money to the custodial parent receiving the payments on behalf of the youngsters.
4. Picking the proper filing status: How you choose to file your tax return can make a big difference in your ultimate tax liability. So it's important to get it right.
Single parents generally qualify to file as the head of household, one of the 5 tax filing status options. It's preferred because it provides a larger standard deduction than the single filing status. In addition, the income brackets and applicable tax rates for head of household (HoH) filers usually are more favorable, particularly at the lower income levels, than those in the single or married filing separately categories.
If you became a single parent because of the death of your spouse, consider instead the qualifying widow/widower (also referred to as surviving spouse) status.
This filing status option is available for the two years following the year a spouse dies as long as you are taking care of a dependent child during those tax years. Note that the year of your spouse's passing, you still can file a final joint return.)
5. Helping daddy with day care: Regardless of how they became single dads, these fathers quickly learned what millions of moms have long known: When you work, you need help taking care of the kids.
Uncle Sam can help a bit.
Parents, whether single or happily paired, can take advantage of the child and dependent care tax credit.
Like the aforementioned CTC, this tax benefit is a credit, directly reducing what tax-filing dads (again, Father's Day gives them preference today) owe the U.S. Treasury.
The child and dependent care tax credit covers up to $3,000 paid to others who help look after one child or up to $6,000 for the care costs two or more kids so that you can work.
To get to the actual child care credit amount you can claim, you have to do some math. Your actual credit claim is a percent of those costs (a maximum of 35 percent) that is based on your adjusted gross income.
The bottom line is that the potential maximum child care tax credit is $1,050 (35 percent of $3,000) for the care of one child, or twice that for two or more kids' care costs. Even I, a child-free person, know that $1,050 or $2,100 is going to cover only a fraction of your kiddos' care costs, but at least this is a tax credit.
Getting baby to sleep is a snap for some dads. (Source: Giphy.com)
I hope all y'all dads got exactly what you wanted from your broods this Father's Day. And I hope at least a few of these tax tips help you save enough to take care of your families.
You also might find these items of interest:
- Abraham Lincoln, father of the U.S. income tax
- Remembering the good old days of simpler taxes for dad
- Do tax breaks contribute to Americans' extended parenting?
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