Filing taxes is a pain for most Americans, and if you’re a single parent, you’re wondering how you will manage this task along with your other responsibilities. No worries; in this post, you’ll learn more about tax filing for single parents. If you’re uncomfortable with doing taxes on your own, work with a trusted tax accountant who knows our country’s tax laws well and can walk you through the process. Whether you’re doing your taxes alone or with an accountant, these tips can assist you.
Maximize Your Tax Refund by Claiming The Child Tax Credit
Another way to maximize your tax refund is by claiming the child tax credit. To claim the child tax credit, you must earn less than $200,000 per year, your child must be under age 17 and the child must have lived with you for a certain period. When you receive the child tax credit, you reduce tax liability and you may increase your tax refund.
Claim the American Opportunity Tax Credit
If you’re a single parent who claims your college-aged child on your taxes or if you’re a college student, you can claim the American Opportunity Tax Credit. To qualify for this tax credit, you must earn at least $80,000 or less. You can claim the first four years of college education up to $2,500 per student. This helps you save money on college-related costs such as books and equipment. You must also receive Form 1098-T from your college to qualify for this credit.
File For Head of Household
Only single parents and caretakers of relatives in their homes qualify to file as head of household. You must also have paid 50% of household expenses and support dependents for more than half the year. Filing for head of household can lower your tax bracket and you can make more deductions than if you filed as a single person.
Claim The Earned Income Tax Credit
Tax filing for single parents can be simplified by claiming the Earned Income Tax Credit. This tax credit is designed to assist low-income families by reducing their tax burden. The maximum income you need to qualify will vary based on how much you earned in the previous year and the number of dependents you have.
Give Your IRA a Boost
If you have an IRA, adding more contributions to this account is tax-efficient. This is because the Retirement Saver’s Credit allows you to receive a tax credit for your retirement account contributions. Single parents who want to claim the Retirement Saver’s Credit and file as head of household must earn $57,000.
Claim The Child and Dependent Care Credit
The Child and Dependent Care Credit reimburses you for the money you spend on child care as a working parent. If you earn less than $15,000, you can be refunded up to 35% of your childcare expenses, up to $3000 if you have one child, or $6000 for two or more children.
Open An HSA Account
If you have a high-deductible health plan, open an HSA account. This is a tax-free account where you deposit money to use only for medical expenses. Your contributions are tax-free and if you invest funds in this account, the interest earned on these funds is also tax-free. This is also a good account for paying for medical expenses that your insurance won’t cover.
Build Savings for Paying Taxes You May Owe
Although you may not owe taxes this year, it’s better to be safe than sorry. Open an online savings account specifically for paying taxes at the beginning of the year before you file your taxes. If you find out you’ll owe taxes, you can use those savings to get on a payment plan with the IRS until all taxes are paid. Finally, replenish your savings so you’ll have funds if you owe taxes next year.
Use Your Tax Refund Strategically
Don’t use most of your tax refund for buying things you don’t need. Use it strategically to build wealth and have emergency savings. Here are some of the places to put your tax refund:
- Opening a retirement account or a regular brokerage account
- Paying high-interest debts
- Building an emergency fund
- Investing in certifications or degree programs that will lead to higher-paying jobs
- Buying things you need
Advice for Self-Employed Parents
If you’re a self-employed single parent, tax filing for single parents might be slightly different for you. The self-employed tax is how self-employed persons pay for Medicare and Social Security. The self-employed tax is 15.3% of your gross earnings. You’ll use Schedule C on Form 1040 to record your self-employment earnings. In addition to this tax, you’ll also make quarterly tax payments since you don’t have your taxes withheld from an employer.
Here are some deductions self-employed single parents can make on their tax returns:
- Home office deductions
- Car expenses for business purposes
- Business travel expenses
- Health insurance premiums
- Retirement contributions
- Office supplies and equipment
- Business insurance
Consider An ABLE Account for Special Needs Children
If you have a child with special needs, open an ABLE account for him. ABLE, which stands for Achieving Better Life Experiences, is an account designated for children with disabilities. Any funds you place in your child’s account will be tax-free. You can also invest the funds you place in the ABLE account. Your child must use the funds for qualified expenses that improve his life. These include college tuition or vocational training, housing, vehicle modifications, transportation expenses, and job training. Your child can also use this account after he reaches adulthood.
Taxes are not fun, but we must file them to avoid legal troubles with the IRS. Use these tips but if necessary, work with a tax accountant who understands this country’s tax laws to ensure you’re doing your taxes correctly. Stay informed of any new tax laws that could affect how you file taxes.
