Single parents filing their taxes have various deductions and tax credits they can use to reduce their taxable income and decrease the amount of personal income taxes they have to fork over to the government. There are multiple legal strategies which a single parent is entitled to use which reduce taxes and in certain situations will grant you tax refunds even if you don’t owe any taxes in a particular year.
Single parents should ensure they mark themselves as the head of household in their tax returns as long as they qualify for the designation. This status will grant you lower tax rates than if you filed as married filing separately or as single. The standard deduction will also be higher under this condition. To be eligible for the head of household category, you must remain unmarried on the last day (December 31) of the year for which you are filing taxes, contribute greater than 50% to financially support your household and your children must stay with you for more than six months of the year.
Determining who you can claim as a dependent will affect not only the dependent credits you can apply for on your tax return, but a number of other deductions and tax credits. Often, which child can be claimed as a dependent by which parent is spelled out in a divorce or separation agreement.
The parent who has custody of a child and should typically claim the dependent credit can sign a document to relinquish his or her claim and permit the non-custodial parent to claim the credit. However, the credit may not be split if you have joint custody and both parents want to benefit from the tax break.
In such situations, parents may consent to claim the child as a dependent in alternate years. If there is more than one child, parents can agree to claim one kid each as long as one child stayed with each parent for at least six months.
The EITC can be claimed by single parents or married couples, but single parents may qualify more easily for the credit since two income families will often surpass the maximum income thresholds after which they are no longer eligible to claim the credit. The EITC has different rates depending on your filing status, family size and income.
The greatest benefit of this credit is that it is refundable. This means if your income tax is lower than the amount of EITC, you will be entitled to a tax refund.
The child tax credit encompasses more than just your children. If you financially supported a child and the kid lived with you for more than six months during the year, you may be eligible to claim child tax credit. Besides your kids, you may claim a foster child, stepchild, sister, stepsister, brother, stepbrother, niece, nephew, grandchild or an adopted child. The child must be younger than 17 years old and must be a US citizen or a resident alien.
As a single parent and filing under head of household status, you can claim a credit of $1,000 up to an annual salary of $75,000. Beyond this income threshold, the credit starts to decline until it is completely phased out. This is a refundable tax credit, so it reduces your income tax and if your tax bill is lower than the credit, you will be entitled to receive the balance as a tax refund.
If you paid someone to take care of your child to allow you to work or look for work, you might be eligible to claim childcare tax credit. To qualify, the child who was in daycare has to be younger than 13 years old.
Expenses which qualify as child care include the preschool fees, summer day camp costs, daycare fees, before or after school care or the cost of hiring a nanny.
The credit is more advantageous if you are filing under the head of household status. This credit is non-refundable, therefore, if it reduces your taxes owed below zero, you will not be eligible for a tax refund.
Although the tax deductions mentioned above may be common, they help greatly in reducing your tax burden. Any deduction or credit you can claim will put more money in your hands and assist you in meeting the needs of your children.
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