If you’re a single parent filing your tax return, you may be able to take advantage of several filing strategies, tax credits, and deductions to possibly reduce your taxable income and your tax liability. This article contains some of the top tax tips for single parents. However, keep in mind that the information provided in this article is general in nature and may not apply to your specific situation. You should consult with a tax professional regarding your specific tax needs.
1. Use the Head of Household filing status
Many single parents are eligible to the use the Head of Household filing status on their tax return. If you qualify to file as Head of Household, your tax rate will usually be lower than the tax rates for the Single or Married Filing Separately filing statuses. You’ll also receive a higher standard deduction if you file as Head of Household. You may be able to file as Head of Household if you meet all three of the following requirements:
- You’re “unmarried or “considered unmarried” on the last day of the year. (Note: “unmarried” means that on the last day of the tax year (12/31/14 for your 2014 tax return) you were unmarried or legally separated from your spouse under a divorce or separate maintenance decree. (To be “considered unmarried,” you must meet the five-part test described here.)
- You paid more than half the cost of keeping up your home for the year.
- A qualifying person lived with you in your home for more than half the year (except for temporary absences, such as school). (Note: To find out who the IRS considers a “qualifying person,” view Table 4 in IRS Publication 501).
2. Claim the Child Tax Credit
Depending on your filing status and modified adjusted gross income (MAGI), you may be eligible to claim up to a $1,000 tax credit on your 2014 return for each of your qualifying children. A child must pass all seven of these tests to qualify for the Child Tax Credit:
- Age Test: The child was under 17 by the end of 2014.
- Relationship Test: The child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, or stepsister. A child can also be a descendant of any of these persons. For example, your grandchild, niece, or nephew will meet this test. Adopted children also qualify.
- Support Test: The child didn’t provide over half of his of her own support for 2014.
- Residence Test: In most cases, the child lived with you for more than half of 2014.
- Dependent Test: The child is claimed as a dependent on your 2014 tax return.
- Joint Return Test: The child doesn’t file a joint return for the year (or, files it only to claim a refund of withheld income tax or estimated tax paid).
- Citizenship Test: The child must be a U.S. citizen, a U.S. national, or a U.S. resident alien.
Amount and limitations of the Child Tax Credit
- To determine if you’re eligible for the Child Tax Credit, answer these questions on the IRS website.
3. Claim the Additional Child Credit
Since the Child Tax Credit is a non-refundable credit, the credit amount is limited to your tax liability and can’t reduce your tax below zero. In other words, the credit you receive can’t be greater than the tax you owe. If your Child Tax Credit is limited by your tax liability, you may qualify for the Additional Child Tax Credit, which is a refundable type of credit. To qualify, you must have at least $3,000 of earned income. If potentially eligible for the credit, use Parts II through IV of Schedule 8812 to see if you truly qualify and if so, what the amount of the credit will be.
4. Claim the Child and Dependent Care Expenses Credit
When you pay for a dependent’s care so you can work, look for work, or go to school full-time, you may qualify for the Child and Dependent Care Expenses Credit, which can ultimately reduce your tax bill. To be eligible for this tax credit, you must file your taxes using Form 1040, Form 1040A, or Form 1040NR, not Form 1040EZ or Form 1040NR-EZ. You also have to meet a variety of qualifying tests. For more information, view IRS Publication 503. For a cursory review of whether you can claim the credit, make sure to check out the flowchart in IRS Publication 503, under the heading, “Figure A. Can you Claim the Credit?”.
5. Claim the Dependent Exemption
For every qualified dependent you claim on your 2014 tax return, you can reduce your 2014 taxable income by $3,950. To figure out who you can claim as a dependent, answer these questions on the IRS website.
This is a post by Lisa, an attorney, from Florida.