Being a single parent is already tough work without the stress that tax time adds. For most people, taxes are a sensitive issue that is best left to people that understand it better. However, seeking a better understanding of the subject could result in unexpected savings. As a single parent, there are tax deductions and credits that you can take advantage. Tax credits actually reduce the total amount of taxes you could have paid to the government. Here are a few ways through which single parents can ease the tax burden:
File the taxes as the ‘Head of Household’
When you file your taxes as head of the household as a single parent, you benefit from a lower taxable income along with a higher potential for tax refunds. To qualify for this status, you must:
- Demonstrate that you have a biological child, foster child, stepchild or dependent. The child must have lived within the home for more than six months of the tax year.
- Prove that you are unmarried, that is, single or divorced, for that tax year.
- Show that you cater to the majority of your household’s expenses
Child Care Credit
Paying for child care is undoubtedly very expensive, but did you know that there is a tax credit that could help you meet this cost? If you had to pay someone to look after your child as you looked for work, you qualify for this tax credit. You also have to meet the following qualifications:
You must show that you earned an income during the tax year. This implies that if you are between jobs or stay at home, you will not qualify for this tax credit.
- The child must have been under 13 years for at least part of the tax year.
- The person taking care of the child must not be under your care.
- The caregiver must not be the other parent.
- File for a dependent exemption
If you filed your taxes as the head of household, you will also be able to claim an exemption for yourself along with that of each qualifying child. This implies that for every exemption, part of your salary won’t be taxed. However, only one parent can claim a child as a dependent when it comes to taxes. Divorced parent with equal custody will, therefore, need to come to an understanding on the same.
Earned Income Tax Credit (EITC)
This is a tax credit intended to ease the tax burden on low and moderate-income working families. It is an incentive meant to reward and encourage work. Studies indicate that EITC is quite effective as it encourages single parents to seek employment particularly during the times that the labor market is stable. The annual low-income bracket falls between $40,320 and $54,884. The EITC is refundable, which implies that should it exceed the person’s income liability, the IRS could refund the balance.
The tax system might sometimes seem unfair, but taking the time to learn and implement all the breaks available to you will result in you making some savings. If need be, hire the services of a qualified tax pro to point you in the right direction.