Posted on: 22 November 2022
The day your child turns 18 is a big milestone for both you and them. But it also affects your own finances and your income taxes. Therefore, one task that every parent of a newly-minted adult should put on their agenda is a tax planning consultation. Why? Here are a few of the most important things to learn more about.
1. Will They Still Be Dependents?
Your adult child may or may not still be considered a dependent for tax purposes. This depends on their future plans, how financially self-sufficient they are, and where they will live. Kids who are headed off to college often bring the same tax benefits as before, however, a child who goes to work full-time while living at home may not. The reason? Different dependency structures in the tax code.
2. What Happens to College Savings?
If your child plans to attend college, you've probably already been putting some money aside. Parents who have used tax-advantaged plans like 529 plans or Coverdell plans have different choices once the child is 18. You can continue to contribute to some while others stop the tax benefits at 18. Find out what your options are so you can decide how to move forward.
3. Should You Change Withholding?
The loss of many of the tax credits and deductions for minor children often means that parents' income tax bill rises at this point. Will yours? If so, how much should you project for that rise? Talk with your tax planner as early in the year as possible to do forecasting based on your new tax situation. They can then help you ensure that you continue to have enough withheld or make the appropriate quarterly payments.
4. Can You Boost Your Contributions?
If your financial responsibility will decrease now that your child has turned 18, what should you do with any extra money? Parents who have prioritized their children's welfare and education up until now often need to prioritize their own retirement contributions. The good news is that you may get just as many tax benefits from the right accounts.
5. Does Your Child Know What to Do?
Don't forget to prepare your now-adult child for their own future tax responsibilities. If they've never filed their own taxes, help them by bringing them to your preparer and discussing their tax situation. Make sure they ask questions they may have and make a plan to ensure they don't face any unwelcome tax surprises in the near future.
Where Should You Start?
The best place to begin answering these questions is by meeting with a qualified tax preparer to do some tax planning. Make an appointment today. For more information on tax planning, contact a professional near you.Share