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Your kids are getting older. Before you know it they’ll be
dating, driving and entering college (if they aren’t already!). Tax breaks
drop dramatically as your children grow up, but you may be able to offset
the losses with some timely tax planning. Consider the following tax events
based on the age of your child:
- Age 13: No more dependent day care credit. The minimum annual credit for the cost of caring
for your children while you and your spouse work is generally $600 for
one child and $1,200 for two or more children when your adjusted gross
income exceeds $43,000. But the credit is only available for children
under age 13.
Tax move: Now
that your child is a teenager, hire him or her to work at your business.
Typically, the child will owe little or no income tax on the wages, and
might even be able to claim an exemption from withholding.
- Age 17: Child Tax Credit (CTC) no longer available. With the CTC you receive a $2,000 credit ($1,600
of which is refundable) for each child. Unfortunately, the credit
disappears when the child turns 17. Remember, a tax credit is a
dollar-for-dollar reduction of your taxes due, so as each child
reaches 17, your taxes will go up by the full amount of the
previously-claimed credit.
Tax move: Claim
a nonrefundable $500 credit for a dependent who isn’t a qualifying child
for the CTC. This is typically available to parents of high school seniors
and college students.
- Age 19 or 24: Goodbye kiddie tax. And now some good news. At 19, your child is no
longer subject to kiddie tax rules unless they are a full time
student. In that case, they stay eligible for another four years
(until age 24). This means any unearned income like interest and
dividends in excess of the annual threshold ($2,300 in 2023) is no
longer taxed at the parent’s (usually higher) tax rate.
Tax move: As
your child exits exposure to the kiddie tax, it may be time for a planning
session. Long-held stocks with capital gains in a child’s name can now be
sold with little to no federal tax obligation.
As you watch your children grow up and
begin gaining their independence, remember to plan ahead for changes to
your tax situation. Please call if you have questions about these child tax
breaks or to schedule a planning session to discuss what other tax breaks
may be available to you.
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