Tax Tips Easy-to-understand tips to keep more of your money
Let’s face it, taxes can be confusing. But you’re not alone. Here are some of Alice’s tax tips to help you through different stages in your life. If you have questions or need help with your taxes, you should always contact a tax professional.
In order to claim your new child as a dependent on your tax return, the first thing you need to do is get him or her a Social Security number. If you don’t, you’ll delay the process. You can request a Social Security card at the hospital when you apply for a birth certificate.
$1,000 Child Credit
Kids are great. A new baby gives you a tax credit and the ability to claim a tax deduction until your child reaches the age of 17. With a credit, your tax bill is reduced dollar for dollar, while a deduction reduces the amount of income that Uncle Sam can touch. Income limits do apply, so ask your local tax pro for details.
If you’re a single parent, you may be able to file your returns as head of household rather than single. The advantage? You get a bigger standard deduction, and you’ll fit into a better tax bracket. In order to be considered head of household, you must pay more than half the cost of providing a home for a qualifying person (your child)
Working parents, don’t miss this tax break on your childcare expenses. You qualify if:
- Your child is younger than age 13, and
- You pay someone else to watch your child while you work or look for work, and
- You and your spouse have earned income, or one of you is a full-time student.
You can receive a 20–35% tax credit for up to $3,000 of your childcare expenses for one child, or up to $6,000 for two or more children. The credit is based on your income, so the more you make, the less credit you’ll receive.
If it’s available at your workplace, you might get a better deal by paying for childcare expenses through a Flexible Spending Account (FSA). The money you contribute is subtracted from your paycheck pre-tax, which means you’ll avoid paying federal, Social Security and Medicare taxes on that money. So, contributing the maximum $5,000 can save you at least $1,133—more if you are in a higher tax bracket. You’ll save even more if you live in a state that has an income tax.
Remember, you and your spouse might need to adjust your withholdings from work.
If you get a big tax refund each year, it doesn’t mean that you are getting a bonus from the government. You overpaid your taxes from the previous year, and they are just sending back your overpayment. That’s a bad idea. You just let the government use your money interest-free for one year. Make that money work for you!
Make sure that both of you adjust your withholdings at work. When you pay your taxes each year, you want to come as close to zero as possible (meaning you don’t owe the government, and they don’t owe you). This is true for singles and married couples.
Sending Kids to College
Did you know that Uncle Sam lets you deduct some of your tuition costs? Depending on your income and filing status, you can deduct up to $4,000 of college tuition and related fees. Also, you don’t have to itemize your deductions to claim it. Not a bad deal.
However, not all tuition and fees are eligible for the deduction. Only certain tuition costs and fees qualify, so you should speak with a tax advisor to see if you can save a few thousand dollars this year.
The American Opportunity Credit has been extended through 2017. Each eligible student can qualify for a maximum credit of $2,500.
Death in the Family
The federal estate tax applies only to estates that exceed $5.25 million, but state estate taxes can vary. Consult your local tax professional to find out how the laws affect your situation.
You will also need to file a final income tax return to comply with tax laws that ensure taxes on your loved-one’s income, before his or her death, doesn’t go uncollected. That responsibility falls to the executor of the estate or, if there is not an executor, a family member. The tax return is filled out the same way as if he or she was still alive, but “deceased” is written after the taxpayer’s name.