Friday, May 15, 2015

Tax Tips for New Parents

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This post was written by Charlotte is a Minneapolis mother of three, DIYer, and self-taught finance expert.

Did you have a baby this past year or are you expecting a baby in 2015? With the 2014 tax year recently completed, it makes sense to take the time now to figure out how you can get an even bigger return on your taxes in 2015. In addition to remembering to avoid common tax mistakes, make sure you also remember to take advantage of these tax breaks for parents to get the most out of your return!

Changes to Your Filing Status

The first thing to do is to make sure that you are using the correct filing status. Now that you are a parent, you may be able to change the way you file to maximize your refund. If you filed as “single” last year and you are now single but still have a child, you can change your tax filing status to “head of household.” This will mean that less money will be taken out of your salary, which means you don’t have to wait all the way until next summer to get some of that money back as a refund. However, if you are married, you won’t qualify unless you are paying more than half of the housing cost of your dependent.

Be sure to talk with your human resources representative at work about making adjustments to your W-4. Now that you have a child, you can request an increase on your take-home amount for each paycheck.

Check Your Basic Credits and Exemptions

There are lots of credits and exemptions meant to ensure that parents are not losing an unreasonable amount of their income dollars to taxes. Make sure you know all of your options in advance as claiming some credits and exemptions may mean you cannot claim others. Here are a few tips to keep in mind when figuring out which credits to claim:

  • Child Tax Credit: You can claim a tax credit for each child you have up to $1,000 each until they are 17. However, if you make more than $75,000 as an individual or $110,000 as a married couple, you may not qualify.
  • Earned Income Tax Credit: This one is a bit of a tricky one and as a result, lots of people don’t realize they are eligible to claim it. Here’s the breakdown: if you are filing jointly and have no children, you could get a credit between $496 and $6,143. You will not qualify if you file jointly and your return exceeds $20,020. However, if you file as a single parent with an income of less than $46,997 or jointly with combined income less than $52,427, you could get up to $6,143 as a credit.

Other Ideas and Credits

Depending on how you structure things now, you could be eligible for even more credits by the time tax season arrives. Consider some of these ideas:

  • Medical Expenses: If you spent at least 7.5% of your adjusted income on medical expenses, you can claim medical expense tax credits. If you have more than one child, medical expenses can definitely add up quickly so be sure that you are keeping track of all of your expenses including dental work and prescriptions.
  • Child Care Flex Accounts: Find out if your employer allows child care flex accounts. These allow you to put up to $5,000 of your salary directly into a flex account for child care, though it’s usually an amount you have to pay up front. If you have two or more children, you can end up claiming up to $6,000 in eligible expenses.
  • Adoption Credit: If you have adopted a child and completed the paperwork, you can claim up to $13,190 for each adopted child in the tax year that the paperwork was completed.
  • Child Care Credit: If you pay for childcare, you can get a credit to help offset the cost of that expenditure. You may be able to deduct up to 35% of the costs of childcare for programs including daycare, sitters, nannies, day camp, and summer camp.
  • College Contribution Credit: Invest in a State 529 college savings plan early. The contributions are non-deductible, but earnings and pay-outs are tax-free.

Consult with a Pro
If you find that your head is swimming with all of the possible credits and dollar signs, consider consulting a professional through a company like www.communitytax.com. A qualified professional can help you figure out which credits will mean the best pay off for you and how you can file to save the most money ultimately.

See my disclaimer.

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