If you’re single, you may be 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 a great time to celebrate some financial wins together like knocking out your taxes and maximizing your tax refunds!
Right away, you have an advantage as a single filer – 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 your forms arrive. With less paperwork, you will have less to gather, so you can start filing your taxes and get closer to your tax refund which is a win in my book!
To celebrate all the wonderful single ladies (and gentlemen), here are a few key ways you can capitalize on your tax benefits and maximize your tax refund.
Make Sure Your Status is Correct
One of the first steps you need to take when filing your 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 $12,200. If you’re head of household, though, you can have a bigger financial win here because your standard deduction is $18,350. 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 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 if your 50 years old or older), up until July 15, 2020 and may be able to take a tax deduction on your 2019 taxes. Just make sure you tell your plan administrator that it is a 2019 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 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 $6,557.
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 children. 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, and with a deduction, you’re lowering your taxable income in comparison with a tax credit, you’re lowering your taxes dollar for dollar.
Your Take on Tax Deductions
I 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’re eligible for.
Besides their easy to use interview-style software, TurboTax also has a live option where you can connect live via one-way video to a CPA or Enrolled Agent with an average of 15 years experience to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish, year-round, and can also review, sign, and file your tax return.
I’d love to hear from you – what tax deductions and credits will you be claiming this year?