Being a single mother or father is no walk in the park. Whether you have one child in high school or recently had triplets, it’s quite a challenge to care for youngsters on your own. It can also take a big toll on your bank account.
There is some good news, though. Single parents qualify for a number of tax-saving strategies to ease their financial burden.
1. Determine who the custodial parent actually is.
In most cases, the custodial parent of one or more children claims them as a dependent when filing taxes with the IRS. So, as the term implies, a custodial parent has custody of his or her child.
But this can vary case by case. It depends where the child lives most of the time in a given tax year that determines which parent can actually claim the child as a dependent. If a son or daughter lives with one parent for at least half of a given year, that parent will likely be granted the opportunity to claim the child on his or her income tax return – even if it’s not the custodial parent with whom the child lives the majority of time. A big factor in this determination is where a child is sleeping most of the time.
2. Use head-of-household filing status.
When you file under head-of-household status on your tax return, you can increase the amount of your standard deduction, and you’ll likely be able to reduce how much of your income is taxed.
To be eligible for this IRS filing status, you must pay at least 50% of all household expenses, must not be married on the final day of a certain tax year, and your child must live in your residence for at least 6 months of the tax year at-hand.
3. Use the dependent exemption on your return.
You can claim an exemption on your tax return for each of your qualifying children before they turn 19. If your child is a full-time student for at least 5 months of a given year, you can also take the exemption for this child until they turn 24. For permanently and totally disabled children, you may be able to claim this tax break with no age restrictions.
The dependent exemption is only available to single parents who care for a son, daughter, stepchild, foster child, or adopted child. Keep in mind that you’re not eligible for this tax exemption if the child you’re caring for provides more than half of his or her own financial support within a given year.
4. Use the Child Tax Credit.
The Child Tax Credit can offer nice savings to single parents. If your filing status is non-married head-of-household, and you earn under $75,000 within a particular tax year, you should be eligible for the credit. You can claim $1,000 per qualifying child for whom you provide care. If you wind up having a remaining balance for the credit, you should receive this bonus amount as part of your tax refund.
Eligible children include those who meet 6 different tests for this credit, according to the IRS tax code. These include the age of the child, the child’s relationship to you, how much you support the child, dependent status, citizenship, and residence.
5. Consider the Dependent Care Tax Credit.
Single parents are often able to claim a specific percentage of childcare costs they incur to either work or to search for a job. Single parents can claim childcare expenses on their return for kids age 12 and under. The Dependent Care Credit is worth $3,000 for one qualifying child and $6,000 for two or more kids.
Keep in mind that only custodial parents are permitted to take advantage of this tax credit, even if this parent’s ex-spouse or ex-partner claims the dependent exemption. If a child reaches age 13 during a tax year, the credit can only be applied to expenses you incur when the child was 12 years old during that year.
6. Claim all other tax breaks for which you qualify.
As a single parent, you may be able to claim a variety of other tax deductions and tax credits that aren’t necessarily specifically related to supporting your kids. These include write-offs for self-employed professionals like the home office deduction, the vehicle deduction, meals and entertainment, and medical costs. There are personal tax credits as well, such as installing energy-efficient windows in your home or buying an electric car. If you own a business, let your child do some work for you, and you can use income shifting to avoid paying taxes on the compensation you pay your child.
Many tax breaks can save you lots of money, which is something all single parents strive to do. So, be sure to thoroughly research your options to minimize your IRS bill and maximize your tax refund.
To learn about additional tax tips for single parents, 1-800Accountant is here to help you save more money when filing your taxes. Call 1-800-222-6868, or click over to www.1-800Accountant.