When your child turns 18, you may experience a number of changes as your child becomes a legal adult. Do these changes include your income taxes? Very likely, they do. And one of the biggest changes is usually whether or not you can claim your adult child as a dependent. To help you determine the effects on your tax bill this year and beyond, here's what every parent needs to know.
1. Some Changes Wait Until Next Year
Some good news for parents and children adjusting to the latter becoming an adult? You may not see all the tax changes this year. As long as the child is 18 at the end of the tax year, for instance, their status as a dependent (known as 'qualifying') child likely remains the same. This gives you time to plan, although other tax credits and deductions may themselves change.
2. Your Child May Be a Qualifying Relative
If your adult child remains a full-time student under IRS rules, you have a few more years to claim them as a dependent child. However, if they are moving on to full-time work, they may no longer qualify as a dependent child. The good news is that there is another category you may be able to use — qualifying relative. While less valuable, this extends some tax benefits longer.
3. College Doesn't Count
Is your 18-year-old headed off to live at college away from home? Don't fret about their status as a dependent child. One of the main tests for qualifying children is that they reside with the taxpayer for more than half the year. However, college dorm living is considered a temporary absence and therefore not a disqualification by itself.
4. Qualifying Relatives Can Last Forever
These days, it takes many young people longer to launch and stay on their own. So if yours is still at home past the age 24 cutoff for qualifying child dependency status, know that there is no age limit to qualifying relative status. There are income limits, though.
5. They May Still Have to File Taxes
Whether or not a taxpayer can be claimed as a dependent doesn't negate their personal responsibility to file their own income taxes. If your dependent earned an income or has unearned income (like royalties), they are subject to filing rules. And the rules for dependents sometimes differ from non-dependents, so take the time to learn more about these.
Where Can You Start?
Whatever questions you have as your little one becomes a legal adult, start by meeting with an experienced tax preparation service in your home state. They will give you the answers and guidance you need to make the best tax decisions for the whole family. Make an appointment with a tax preparation service today.
Share23 November 2022
Accounting is the absolute most important element of running a business. If you mess up the bookkeeping even the slightest bit, the entire business could be in trouble. I know how costly a small bookkeeping error can be. About three years ago, I made a seemingly small mistake in the financial records for my business and the next year when I filed my taxes, things were very bad for me. What would have required a small tax payment had suddenly turned into a big tax bill and quite a headache. Since then, I have worked with an accountant and things have been better.