Being Head of Household grants you greater exemptions than claiming Single status on your tax return. I wish I could say it was as much as filing Married Jointly but that is what is called “the price to pay for freedom.” Okay, maybe that isn’t exactly what that phrase is referring to, but it does fit.
Exemptions mean you get more credits against taxes paid which means you either get more money back or save what you would otherwise pay.
Couple things to keep in mind when selecting filing status. If you are still technically married, you cannot claim either. You must choose to file jointly or separately. Keep in mind that filing separately will kill many exemptions, deductions and thresholds on your tax return.
If you have a spouse that just up and left, you can file for an exception. Check with your local tax preparer to get the right forms in place to get the IRS benefits of Head of Household status.
Tax Tip #2: Child Support Vs Spousal Support
Don’t count what you don’t need to when it comes to money you get from your ex. The IRS is very clear on this matter. Child support is not counted as income and doesn’t need to be listed anywhere on your tax return. Spousal support you receive is counted as income for you and deducted as an expense for your ex.
Thus, spousal support could affect your tax rate, your ability to contribute to a Roth IRA or get certain credits.
Tax Tip #3: The Child Tax Credit
The Child Tax Credit was doubled with the passing of the Tax Cuts and Jobs Act of 2017. This means you are eligible for up to $2,000 per qualifying dependent. It seems a bit complicated since there are income thresholds to maximize the credit and part of it, $500, is refundable while the other part is non-refundable.
Don’t get caught up in the minutia. Refundable simply means you can earn it as a refund where non-refundable can only take your tax liabilities to zero.
Here is what you need to know:
- Child must be under age 17
- Child must be yours by birth, stepchild or foster child
- You provide more than half of his support for the past six months
- Must be your dependent meaning lived with you for more than half of year
- Child must be a U.S. citizen, U.S. national or U.S. resident alien
- Your Modified Adjusted Gross Income must be less than $75,000 to get full credit
If you are wondering about the support and dependents component, check with your court order or divorce decree. It usually stipulates what parent can claim the dependency for tax purposes if you split custody.
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Tax Tip #4: The Earned Income Credit
The Earned Income Credit is a refundable credit for low-income households. As a refundable credit, someone who wasn’t required to file or have paid any taxes can get this entire credit as a refund. For example, if you file your taxes and owe $500 but receive the full Earned Income Credit for $5,716 (a household of you and two children), you will receive a refund of $5,216 even though you never paid those taxes.
For Single and Head of Household Filers, the maximum income thresholds are $40,320, $45,802 and $49,194 for 1-3 children in the home respectively. Remember that while spousal support is counted as income it does not affect the wage limits of this credit.
Tax Tip #5: The Child and Dependent Care Tax Credit
If you have a child or children under the age of 13, you may be eligible for The Child and Dependent Care Tax Credit. This credit will give you a percentage back of childcare costs paid up to $3,000 ($6,000 for two or more children). This is a non-refundable credit which means it can only reduce tax liabilities to zero.
To get The Child and Dependent Care Tax Credit:
- Children must be under age 13
- Have valid childcare costs with valid tax identification numbers for care providers.
Tax Tip #6: Fund That IRA
Trust me, I know that money gets tight when you are a single mom. But if you can, fund that IRA. If you don’t have the money right now, check to see what contributing will save you and what your refund will be. The IRS actually allows tax filers to fund IRA accounts with their refund.
This means you can take the deduction, lower your tax liability, increase your refund and not have funded the IRA until the refund check hits the account. The IRS actually has a program where you can have your refund go directly to the IRA to make sure you don’t get tempted to take a few spas days instead.
It’s nice to know that the IRS is looking out for you, at least in that little way.
Final Thoughts on Tax Tips for Single Moms
Divorce is complicated. Single parenting is complicated. Taxes are complicated.
Obviously, these are just a few things to keep in mind when doing your 2018 taxes in 2019. Many tax software programs are inexpensive and will walk you through what you are allowed and not allowed to do.
In fact, Credit Karma allows you to sign up and file your federal and state taxes for free. No catch! Don’t be afraid of the big old IRS dude.
Take the time to understand how your court orders read and what filing will benefit you the most. Maximize exemptions and credits so you pay as little in taxes as possible and ideally maximize your refund.
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