Posted on

6 Tips for Tax Saving Parent for Tax Filing in 2024

When it comes to maximizing tax saving for parent and other taxpayers with dependents, the Internal Revenue Service (IRS) provides various deductions and credits. Here are six essential tips for filing your taxes to ensure you benefit from these tax opportunities for any tax saving parent.

1. Accurate Social Security Numbers (SSN).

Having accurate Social Security Numbers (SSN) for all your dependents is crucial. In the past, it was possible to forego having an SSN for young children, but times have changed. Presently, if a dependent lacks an SSN or any other tax identification number, you are unable to claim deductions or other tax advantages on their behalf without any leeway.

Should you attempt to do so, you may face a penalty. It is important to verify that the SSN provided on your tax return is accurate and that the name listed exactly matches what is on your child or dependent’s Social Security card.

2. Utilize the Earned Income Tax Credit (EITC).

Make sure not to overlook the significance of the Earned Income Tax Credit (EITC). This tax benefit is highly advantageous, yet frequently goes unnoticed. Surprisingly, the eligibility criteria for this credit are more accessible than anticipated.

In the scenario where you are the tax saving parent of a single child and are submitting a joint tax return for the year 2022, you and your partner have the opportunity to earn a combined income of $49,622 and remain eligible for tax credits.

For families with three or more children, the maximum income allowed is $59,187. Conversely, for childless couples, the income threshold for claiming the EITC is set at $22,610. The amount of EITC benefits you receive is heavily influenced by the number of dependents you can claim, so be sure to consider each individual’s eligibility.

One frequently overlooked opportunity arises when individuals mistakenly believe that only the tax saving parent who asserts the dependency exemption is eligible to receive the Earned Income Tax Credit (EITC) for the qualifying child. In reality, the parent with whom the child resides is the sole individual eligible to claim the child for this tax credit. It is plausible for one parent to claim the child as a dependent, while the custodial parent claims the child for the EITC.

tax saving parent

3. Childcare Expenses Tax Credit.

In the event that you hire a caregiver for your child while you are employed or actively seeking employment, and your annual income falls below $15,000, you could be eligible for a tax credit of up to 35 percent on the initial $3,000 spent on childcare.

As income increases by $2,000, the percentage decreases by 1 until it reaches 20 percent for amounts equal to or exceeding $43,000.

To claim this tax benefit, it is essential to provide the Social Security number or tax identification number of the recipient of the payments made. It is advisable to avoid making clandestine payments to childcare providers for this reason.

When requesting receipts and essential information for claiming tax benefits, make sure to communicate clearly with the provider. In case they are unable to provide the necessary details, demonstrate the efforts you made in trying to obtain the required documentation.

This tax credit is accessible to you until your child turns 13 years old. In cases where your child or dependent requires assistance with self-care due to physical or mental limitations while you are working or seeking employment, you are still eligible for this credit regardless of the child’s age.

4. Employer Childcare Reimbursements

When it comes to financial benefits for child care, employer reimbursements can often outweigh the advantages of the Child and Dependent Care Credit. Utilizing a reimbursement account through your workplace allows for contributions of up to $5,000 annually, specifically designated for childcare expenses.

In light of its exclusion from both Social Security and income tax, contributing funds to this account proves particularly beneficial for individuals with moderate to higher earnings. This category of plan is sometimes identified as a dependent care benefit plan.

5. Consider Different Tax Filing Status

Tax saving parent can select the appropriate tax filing status that can significantly impact the amount you owe in taxes. For individuals who are unmarried and responsible for a child or dependent, they may qualify for the Head of Household filing status. It is possible to claim this status even if the child’s other parent is claiming the dependency exemption.

In most cases, selecting the head of household filing status can result in a reduced tax rate and increased standard deduction compared to filing as a single individual or choosing the married filing separately option. Furthermore, in the event of a spouse’s passing and meeting specific criteria with a dependent child, there is an option to file as a qualifying widow(er) with a dependent child for a period of two years after the spouse’s demise.

6. Education Expenses for Tax Credit.

Make sure to keep track of your educational spending from the previous year, such as textbooks and materials, in order to determine your eligibility for the American Opportunity Tax Credit. You could receive up to $2,500 to offset these expenses; tuition fees do not solely determine it.

When considering tax deductions, it is worth noting that expenses such as fees, books, supplies, and equipment can be claimed for yourself, your spouse, and any dependents.

Considered another well-liked educational tax benefit, the Lifetime Learning Credit offers the potential to reduce your taxes by up to $2,000. As your modified adjusted gross income increases, the maximum amount of this credit you are eligible for decreases.

Posted on

More taxes,  Less Tax Credit after 2025

As the clock strikes midnight on December 31, 2025, a deluge of tax adjustments will cascade upon the majority of Americans with the conclusion of the Trump tax reductions after 2025.

Once the clock strikes midnight on the Tax Cuts and Jobs Act of 2017 (TCJA), its major provisions will fade into the shadows unless Congress takes action to prolong them. An array of tax aspects, from brackets and rates to credits and deductions, are at stake. Should these TCJA elements sunset, their repercussions will be felt far and wide by individuals and families alike.

In light of potential upcoming changes, RapidTax dedicated tax professionals emphasize the importance of being proactive and taking necessary measures to avoid unexpected tax implications in the future.

It is undeniable that alterations in tax deductions and tax credits will impact individuals in varied ways. Higher tax rates will be uniform across the board, affecting everyone.

tax after 2025

Why Are Higher Taxes After 2025?

Implemented under the leadership of President Donald Trump, the Tax Cuts and Jobs Act (TCJA) reduced tax rates for all income levels and altered the boundaries of various tax brackets. While the extent of tax reductions varied among individuals, experts in taxation noted that nearly everyone experienced some level of financial benefit from the changes.

Consider this scenario: In 2017, a married couple with a total income after deductions of $250,000 faced a 33% tax rate, which decreased to 24% by 2024. Similarly, an individual earning $39,000 in taxable income in 2017 had a top tax rate of 25%, which then dropped to 12% in 2024. Those in the highest tax bracket saw their rate decrease from 39.

Taxes May Revert to Rates Before the 2017 TCJA Taxes.

One way Americans can reduce their tax burden is by capitalizing on the current lower tax rates. A strategic approach could involve accelerating income into the upcoming years of 2024 and 2025. Retirees, for instance, may find it beneficial to withdraw a bit more than their mandated minimum distributions during these specific years.

According to him, some individuals might view a Roth conversion as a strategy to reduce costs by taking advantage of current lower tax rates and avoiding taxes upon withdrawing from Roth accounts.

If you foresee a potential increase in your tax rate, it may be advantageous to reassess the timing of deductions. Postpone claiming deductions such as charitable donations and retirement contributions to reduce your taxable income in the coming years, particularly from 2026 onwards.

Less Child Tax Credit After 2025

In light of recent tax reforms, the TCJA ended the personal exemption previously granted for every dependent under the age of 17. However, it also doubled the child tax credit to $2,000 per individual.

Should Congress fail to take action before 2025 concludes, the child tax credit will return to its previous amount of $1,000 for each child under the age of 16. The credit would be both refundable and gradually introduced, with the initial threshold being $3,000 in earned income.

In the recent legislative session, the House approved a bill to enhance the child tax credit under Republican leadership. The proposed changes involved a gradual rise in the refundable segment throughout 2023 to 2025, along with provisions to align the tax credit with inflation from 2024 onwards.

In light of the proposed changes, work obligations will still apply. Yet, families with limited income who are exempt from paying income taxes could now receive a refund of up to $1,800 from the $2,000 per child tax credit, a notable increase from the existing $1,600. This refund amount is anticipated to increase to $1,900 by 2024 and ultimately reach $2,000 by 2025. 

Regrettably, the bill never faced a vote in the Senate, resulting in a standstill for the proposed legislation.

Itemize Your Expenses

Following the implementation of Trump’s tax cuts, there was a significant increase in the standard deduction, effectively lowering individuals’ taxable income and enabling more people to take advantage of it instead of itemizing their tax deductions.

In addition to raising the standard deduction, the TCJA made the decision to remove the personal exemption of $4,050 per individual. Although the elimination of personal exemptions somewhat balanced out the benefits of the higher standard deduction, overall, the Tax Policy Center noted that this change resulted in a rise in the taxable income threshold for 2018, ultimately benefiting taxpayers.

If this provision expires, the standard deduction will be reduced, personal exemptions will be reintroduced, and individuals will be more likely to opt for itemizing their tax returns once again.

Andrew Lautz, associate director of the Economic Policy Program at the Bipartisan Policy Center, emphasized that Americans will swiftly notice the impact of increased tax rates and reduced standard deductions in 2026 in their paychecks.

Calculating withholding amounts involves predicting your income and applying the tax rate to that income. This calculation assumes you will opt for the standard deduction, the value of which may decrease if the YCJA legislation lapses.

Posted on

Unexpected Tax Deductible Expenses

Exploring beyond the familiar tax deductible expenses such as mortgage interest and charitable donations can uncover a multitude of lesser-known expenses that have the potential to reduce your tax bill and boost your refund when you file your taxes. While commonly recognized deductions can be beneficial, there exist various lesser-known deductions that might come as a surprise and offer additional savings. Discovering these unconventional tax deductions could make a significant difference in how much you pay in taxes.

Tax Deductible Sales Taxes

When considering tax deductions, individuals who itemize expenses can tax deduct either local or state income taxes paid or the state and local sales taxes paid during the year. Depending on the tax laws in certain states and years, it could be more beneficial to list your deductions instead of opting for the standard deduction.

Residents living in states without income tax or individuals who have made substantial purchases subject to sales tax may find this deduction to be incredibly beneficial.

Consider this scenario: after a significant purchase, such as a car or an engagement ring, you have the opportunity to deduct sales taxes from your federal tax return. Furthermore, residing in a state without a state income tax means you can claim the sales tax you’ve paid during the year as a deduction.

Tax Deductible

Tax Deductible Medical Expenses

When it comes to medical costs, there are opportunities for tax deduction based on your adjusted gross income. If you choose to itemize your tax deductions, you can tax deduct medical expenses that surpass 7.5% of your AGI. Additionally, self-employed individuals can deduct their health insurance premiums in full. This deduction is applicable if you do not have any other health insurance coverage. Remember, the deduction is limited to the amount of business income generated during that specific year.

Tax Deductible Student Loan Interest

When it comes to managing student loan interest, a helpful tax deduction is available for those responsible for repaying student loan debt. This deduction allows individuals to deduct up to $2,500 of interest paid. However, if the student loan debt is covered by a third party, such as parents, the situation becomes more nuanced. In such cases, the money parents contribute towards the loan is considered a gift to the student.

Tax Deductible College Expenses

When it comes to college costs, many are aware of the deduction available for tuition and fees. However, there are other educational expenses that you may be able to tax deduct as well. This encompasses expenses for workshops, seminars, and specific textbooks and supplies. Furthermore, in some states, you might be eligible to deduct the contributions you make to your 529 College Savings Plan.

Home Office Tax Deduction

When it comes to claiming the Home Office Deduction, it’s important to remember that only spaces in your home exclusively used for business purposes can qualify for a tax deduction of $5 per sq foot, with a maximum of 300 sq feet, which is maximum of $1500 home office tax deduction.

Child & Dependent Care

Assistance with Child and Dependent Care can offer tax benefits to individuals who hire a caregiver to look after their children or elderly parents while they pursue employment, seek job opportunities, or engage in full-time education. This may qualify them for the Child and Dependent Care Credit, provided that the caregiving is conducted for dependents living with them.

Special State Tax Deductions

When it comes to tax deductions, each state may have its own unique offerings. Consider, for instance, that Hawaii provides a special tax break for individuals who care for an “Exceptional Tree,” such as the native Norfolk Pine. This particular deduction can amount to as much as $3,000 per tree and is eligible for claim every three years.

In Alaska, a unique provision grants a deduction of up to $10,000 to help cover the expenses associated with traditional whaling practices where whales are hunted for their blubber and skin to support the local community. Similarly, residents in New Mexico can be exempt from state income taxes upon reaching the age of 100, provided they have been a resident for at least six months prior.

Tax Relief for Taxpayers

Assistance with Taxation for Individuals. The uniqueness of each tax situation is worth noting. Numerous deductions and credits are available to taxpayers for inclusion on their federal or state tax filings.

When it comes to maximizing your tax benefits, it’s essential to consult with a tax advisor to determine the tax deductions and tax credits you qualify for and the supporting documents required for claiming them. It’s crucial to note that attempting to claim deductions without adequate substantiation may result in tax audits and delays in processing your tax return.