February is here! And besides celebrating that we only have one month of winter left, there are a couple of other things we can celebrate – including taxes.
Yeah, you read that right – tax season is upon us as well and with it a great opportunity to give our finances a big bump.
And if you’re single, you may be anticipating hanging out with your lady crew for Galentine’s Day.
It’s a day that’s literally leaped from TV to real-life, but it can also be special if you use it as an opportunity to celebrate some financial wins together like knocking out your taxes and maximizing your tax refunds!
Winning with Your Taxes
Right away, you have an advantage – instead of waiting for both sets of W-2s, 1099s, and other financial documents like many couples have to do, you can file as soon as yours arrive.
With less paperwork, you will have less to gather, so you can get started filing your taxes and get closer to your tax refund which is a win in our books!
To celebrate all the wonderful single ladies (and gentlemen), here are a few key ways you can capitalize on your tax benefits and hopefully maximize your tax refund!
Make Sure Your Status is Correct
One of the first steps you need to make when filing taxes is to make sure you’re using the right filing status.
The IRS has five main categories – single, married (filing separately), married (filing jointly), head of household, and qualifying widow(er) with dependent child.
Why is this important? Basically, your standard deduction, your tax, and certain tax credits and deductions you can claim are all based on your filing status.
For those filing single, the current standard deduction is $12,400.
If you’re head of household, though, you can have a bigger financial win here because your standard deduction is $18,650. To qualify for this status you have to be both single and supporting a dependent.
The Magic of 401(k)s and IRAs
With your status in the right spot, you can now focus on reviewing your accounts. Some of them – like your 401(k) – can be fantastic wins for you because of their tax benefits.
If you’ve been contributing to your company’s 401(k) you’re doing your current and future self a favor. One, your contributions are pre-tax, which lowers your taxable income now. Two, your investments can grow tax-free.
You get the same benefits with your traditional IRA, so if you have more room in your budget, open one up and start setting yourself up for a sweet and fantastic retirement later! You can also make a 2019 IRA contribution up to $6,000 ($7,000 50 and older), up until the extended May 17, 2021 tax deadline and may be able to take a tax deduction on your 2020 taxes. Just make sure you tell your plan administrator that it is a 2020 contribution.
Grab Big Wins with Family and Dependent Credits
Raising kids can be pricey, especially for single parents, but that doesn’t mean you can’t get some big tax benefits with them now.
For families who meet the income limits, the Earned Income Tax Credit can be a wonderful benefit as it is a credit that can lower the taxes you owe dollar for dollar and may qualify you for a refund. If you have 3 or more kids, the credit can be up to $6,660.
Under the American Rescue Plan, starting in tax year 2021 (the taxes you file in 2022), the Federal Earned Income Tax Credit (EITC) has been expanded for workers without kids and nearly triples the maximum credit. Eligibility is also extended for a wider range of tax filers, including those who are over 65 or between the ages of 19–25.
Daycare is a huge expense for many parents, but you may be able to offset some of that by taking the Child and Dependent Care Credit. The Child and Dependent Care Credit can be up to 35% of your expenses up to $3,000 ($1,050) for one child and up to 35% of your expenses up to $6,000 ($2,100) for two kids.
If you have a qualifying child under 17, you may also be able to claim the Child Tax Credit, which is $2,000. What makes this a wonderful benefit is that it’s a credit, not a deduction.
Beginning next year, the Child Tax Credit will be expanded. The American Rescue Plan increases the amount that families claiming the Child Tax Credit receive from $2,000 to:
- $3,600 for each child under 6
- $3,000 for each child age 6-17
The credit is now fully refundable – meaning that you are eligible for the credit even if you don’t owe taxes.
Though this credit is for next year’s tax filings, payments will also be sent in advance, over the course of the year, beginning no earlier than July 2021 so people don’t have to wait to file their 2021 taxes.
With a deduction, you’re lowering your taxable income. With tax credits, you’re lowering your taxes dollar for dollar.
Your Take on Tax Deductions
We hope these tips help you get all the tax deductions and credits you qualify for. If you have any questions about whether or not you qualify, TurboTax can make things much easier! TurboTax asks you simple questions about you and gives you the tax deductions and credits you are eligible for.
Besides the easy-to-use interview-style software, there is also a live option where you can connect live via one-way video to a TurboTax Live tax expert with an average of 12 years-experience to get your tax questions answered. TurboTax Live tax experts are available in English and Spanish, year-round, and can also review, sign, and file your tax return. You can also fully hand over your taxes to a TurboTax Live tax expert from start to finish. All from the comfort of your home.
We’d love to hear from you – what tax deductions and credits will you be claiming this year?