Tax Benefits for Single Parents

 

If you are a single parent dealing with the complicated tasks of working and raising a family, there are some tax benefits and issues you should be aware of. 

Filing Status – Just because you are single or widowed does not mean you have to file your tax returns using the single filing status. Tax law provides two far more beneficial filing statuses that you might qualify for. These statuses provide higher standard deductions and more beneficial tax rates: 

Head of Household – If you are unmarried and pay more than half the cost of maintaining a household that is the principal place of abode for your qualified child or children for more than one-half of the year, then you qualify for the head of household status. Qualified children generally include your children, grandchildren, foster children or stepchildren under the age of 19 or a full-time student under the age of 24 who is not self-supporting. This is true even if you allow the other parent to deduct the dependency exemption for the child. 

Qualified Widow – If you are widowed, you may qualify for the head of household status discussed just above. However, if your spouse passed away in one of the two prior years, you have a child or stepchild (not including a foster child or grandchild) whom you can claim as a dependent and who lived with you the whole year, and you paid more than half the cost of keeping up the home, you can use the higher standard deduction for married individuals filing jointly. In comparison, in 2016, the standard deduction for marrieds filing jointly is $12,600, which is twice the amount for a single individual.

Child Support – Any child support you receive from the non-custodial parent is tax-free to you. Child support is also not included in household income for the purposes of determining the premium tax credit if you are otherwise qualified and obtain your health insurance through a government marketplace. 

Alimony – In most cases alimony payments received from your former spouse must be included in your income and are subject to tax. However, you can treat the alimony as earned income for purposes of making an IRA contribution of as much as $5,500 ($6,500 for those age 50 and over). 

Exemptions – You are entitled to an exemption allowance of $4,050 for yourself and each of your children and others whom you claim as dependents on your tax return. Generally, the custodial parent will be the one eligible to claim a child’s exemption allowance. The value of the exemptions you claim is subtracted from your gross income when you are figuring out the amount of your taxable income. For example, if you are in the 25% tax bracket, each exemption allowance you deduct saves you $1,013 of tax. However, if you allow the non-custodial parent to claim the exemption of a qualified child, then you forego the $4,050 exemption allowance for that child. 

Releasing the exemption of a child to the noncustodial parent must be done in writing and to IRS’s specifications as to required information. The noncustodial parent must then attach the written form to his or her return. The release can be for one year, for specified years or for all future years. If the exemption for the child is released, then the noncustodial parent will be able to claim the child tax credit (discussed below). Note: If a child is older and attending college, keep in mind when relinquishing the child’s exemption that the partially refundable tuition credit goes to the one who claims the child. 

Child Care Credit – If your child or children are under age 13, and you are working or attending school, you may qualify for the non-refundable child and dependent care credit, which is based upon the amount of your earnings from working (or imputed income if attending school) and the amount of child care expenses, up to $3,000 for one child and $6,000 for two or more children. The credit can be as much as $1,050 for one child and $2,100 for two. 

Child Tax Credit – You are also entitled to a non-refundable tax credit of $1,000 for each child under the age of 17 that you claim as a dependent. However, this credit begins to phase out for those filing as head of household with incomes in excess of $75,000. Some taxpayers with lower income may qualify for some portion of this credit to be refundable. 

Earned Income Tax Credit (EITC) – If you are working, you may also qualify for the EITC. This refundable credit is available to lower-income taxpayers and is based on your income and the number of children you have, up to three. The maximum credits for 2016 are $506 with no children, $3,373 with one, $5,572 with two, and $6,269 with three or more. The credit is totally phased out at incomes of $14,880 with no children, $39,296 with one, $44,648 with two, and $47,955 with three or more. 

As you can see, there are a number of tax benefits that apply to single parents. Please contact Alliance Financial & Income Tax to be sure you are not missing out on one or more of the benefits available to you. If you are a custodial parent, before releasing your child’s exemption to the noncustodial parent, you may wish to contact this office so the tax impact on your return(s) can be determined.

ONLY 10 DAYS LEFT FOR 2016 TAX DEDUCTIONS

Just a reminder that the last day you may make a tax-deductible purchase, pay a tax-deductible expense, or make tax-deductible charitable contributions for 2016 is Saturday, Dec. 31, just 10 days away. 

That still gives you time to make charitable contributions, pay deductible taxes, and make business acquisitions before year-end. However, making a last-minute purchase of business equipment isn’t enough to be able to deduct the cost of the equipment – you also must place that equipment into service before year’s end. This means you can’t take a deduction on your 2016 return if you take delivery of the equipment after the end of the year, even if you paid for the item in 2016. 

A charitable contribution to a qualified organization is considered made at the time of its unconditional delivery, which, for donations made by check, is the date you mail it. Contributions you make by text message are deductible in the year you send the text message if the contribution is charged to your telephone or wireless account. If you use a pay-by-phone account, the date the financial institution pays the amount is considered the date you made the contribution. 

If you pay your taxes by check and your financial institution honors the check, the day you mail or deliver the check is the date of payment. If you use a pay-by-phone account (such as electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of the tax payment. 

Purchases, tax payments or contributions charged to your credit card are deemed purchased when the charge is made, regardless of when you pay the credit card company. 

Wishing you a happy New Year and looking forward to assisting you with your tax preparation needs during the coming tax season.

A Holiday Prayer for All of Us

I came in to the office this morning, and I noticed that traffic is already a little lighter around town. Many of us are still working, but I have plenty of friends who have already taken time away from work, starting today.

Whatever your faith background, it's hard to ignore the holiday clamor. In my opinion, it's a crying shame that a season of reflection and prayer would become transformed into something so... busy. It's almost as if we now have to rush around to purchase or artificially create these nostalgic moments, when they probably would have earlier happened on their own.

Now look -- as a proud business owner, I have no problem with people earning money during this season...I just wonder when it's time to say "enough"?

Maybe it really is the holidays, because as I've been meeting with clients recently, I've discovered that many of you are worried and stressed -- about finances, family, personal circumstances, etc. It's not my job to save the world on your behalf of course, but I do get to be somebody in your world who can encourage you to slow down, take a breather and keep your perspective on what's really important. 

(By the way, we are still meeting with clients to help them with year-end issues, so feel free to email me back or call us at (816) 220-2001 for help.)

Anyway, thanks for your friendship, and for your business in 2016, and (hopefully) in 2017.

This week's Note is to help us all keep perspective, this week...and into next year.

Mike Mead's 

"Real World" Personal Strategy Note

A Holiday Prayer for All of Us

"People travel to wonder at the height of the mountains, at the huge waves of the seas, at the long course of the rivers, at the vast compass of the ocean, at the circular motion of the stars, and yet they pass by themselves without wondering." -St. Augustine

"God, help us remember that the jerk who cut us off in traffic last night is a single mother who worked nine hours that day and is rushing home to cook dinner, help with homework, do the laundry and spend a few precious moments with her children.

"Help us to remember that the pierced, tattooed, disinterested young man who can't make change correctly is a worried 19-year-old college student, balancing his apprehension over final exams with his fear of not getting his student loans for next semester.

"Remind us, Lord, that the scary-looking bum, begging for money in the same spot every day (who really ought to get a job!) is a slave to addictions that we can only imagine in our worst nightmares ...

"Help us to remember that the old couple walking annoyingly slowly through the store aisles and blocking our shopping progress are savoring this moment, knowing that, based on the biopsy report she got back last week, this will be the last year that they go shopping together.

"Father, remind us each day that, of all the gifts you give us, the greatest gift is love. It is not enough to share that love with those we hold dear. Open our hearts not to just those who are close to us, but to all humanity. Let us be slow to judge and quick to forgive, show patience, empathy and love. "

Amen.

Warmly,

Tax Planning Tips for New Home Buyers

In the first year of home ownership, applying the right tax credits and deductions is crucial in offsetting your expenses. To take advantage of the available programs, you will likely need to make big changes to the way you approach your tax calculations, especially if you routinely apply the standard deduction. In the end, you will likely see a marked decrease of your tax burdens upon claiming the right elements on your taxes. Here are four tax planning tips you can utilize to take the sting out of buying your first home.   

Smartly Utilize IRA Funds

If you need a little bit extra money for a down payment or closing costs, you can take up to $10,000 out of your individual retirement account, or IRA, to cover those expenses. Although you are normally subject to a penalty for early withdrawals, applying the funds to the purchase of your first home relieves you of this obligation. You will lose the potential for increased compound interest gains, however, so restore your IRA balance as soon as you can to continue building wealth for retirement.

Complete Wise Home Upgrades

You can dramatically decrease your tax obligations, and potentially receive a refund, by making key improvements to your home before the end of the tax year. If you invest in energy efficient upgrades, for example, you can apply federal tax credits that will offset those costs and decrease your tax burdens. If you run your own business, or complete certain work tasks at home, you can carve out a dedicated space for those activities to claim the home office deduction at the end of the year.

Even if you cannot immediately apply credits or deductions for home improvements, it is important to keep receipts for your renovation projects. When you sell your home in the future, you may be able to deduct a portion of those expenses, but only if you have the receipts on hand.  

Itemize Your Deductions

You may be eligible for a multitude of home ownership deductions in the first year after buying your home and beyond. You will need to skip the standard deduction, and itemize, to claim the full range of programs. You may be able to claim a portion of your mortgage interest and points, private mortgage insurance premiums and real estate taxes by itemizing each of your deductions for the year.

Apply Applicable Credits

Home ownership credits offered by way of the Mortgage Credit Certificate Program will offset your tax burdens even further. This program starts in the first year of home ownership and continues through the life of the loan. Upon electing to participate in this program, you will receive up to 30% of your mortgage interest back in the form of a federal tax credit. You must acquire a mortgage credit certificate from your local government office to apply this credit to your taxes.

Preparing Your Taxes After Purchasing a Home

If you want to maximize your deductions and apply the right credits, work with a tax expert at Alliance Financial & Income Tax.  Your MO tax professional will apply all of the right elements to your tax calculations to help you reduce your obligations and maximize your refund potential. With a tax expert by your side, you will be able to smartly offset your home purchase costs and fully enjoy the benefits of home ownership.

Blue Springs, Grain Valley Tax Preparation - Who Is Alliance Financial ...

2016 Tax Highlights

5 Questions to Ask a Blue Springs Tax Preparer

When you're looking for tax help, your first step is to identify the type of tax preparer you need. You'll want a professional who has the right experience for your particular needs and can work at a price you can afford. Ask these questions to any Blue Springs tax preparer you're considering:

1. What are your credentials? Make sure the tax preparer has passed recent state or federal tests. (California, Maryland, and Oregon require licenses.) Ask, too, if he is a member of a professional organization related to tax preparation and attends continuing education classes.

2. How much experience do you have? Look for a tax preparer who has had at least seven to 10 years of experience. While that may not seem important, the more time a preparer has been working on tax returns, the more likely he is to have dealt with a tax situation similar to yours.

3. What kinds of clients do you usually work with? Ideally, you want a preparer with clients similar to you. That way, he'll be able to give you the best service for your particular needs.

4. Can you give me a price quote? Often, a tax preparer will say that he can't tell you what he'll charge until he determines which forms you'll need. But you can try to pin down an answer by presenting the forms you completed last year or by asking for a list of fees for various types of tax help. Avoid preparers who base their fees on a percentage of your refund.

5. Do you provide audit help? CPAs and Enrolled Agents can usually represent you before the IRS. The national chains provide free audit advice to clients, but you might have to pay extra to have someone accompany you to an audit or talk to the IRS on your behalf.