How Single Moms Can Make Money with Their Taxes

Many people are apprehensive about filing their taxes. They worry about how much they will owe, or they are intimidated by lengthy forms like the standard 1040A. Tax filing is simple though, and with a little bit of knowledge, it can also be profitable to struggling single mothers.

The first question to ask is whether you earn enough that you are subject to federal income tax. If you are a single mom and your annual income is $30,000 or less, you probably are not subject to tax. If this is the case, go to your Payroll or Human Resource department now and change your W-9. At the bottom of this form, you can list yourself as "EXEMPT", meaning no federal tax will be withheld from your paycheck.

The next question is to determine whether you qualify for the Earned Income Credit. If you have children, and you fall within the $30,000 or less annual income range, you qualify. (Actually, the limit is around $37,000 for one child). With the EIC, you may be eligible for a credit of up to $1,000 per child. However, this only applies to children that lived with you for the majority of the year. If you do not have primary custody, be careful in selecting this credit. Misuse of the credit can result in penalties and not being allowed to take the credit ever again.

If you do qualify for EIC, check with your employer to see if they offer Advanced EIC payments. These are advances you receive on your paychecks based upon the expected amount of your EIC. Typically, they will equal about half of your expected credit. If you are having a hard time making it paycheck to paycheck, this additional $20 to $50 (on average) on your check can be helpful. Be aware though that Advanced EIC payments must be deducted when you file your taxes.

Several years ago the IRS added another tax credit for families with children. Single or not, many middle and low-income families qualify for what is called the Additional Child Tax Credit. Basically, this is additional money simply for having a child. If you qualify for EIC and you have a child, you should also qualify for the additional child tax credit.

If you pay someone to watch your children while you work, you may also be eligible for tax credit. This does not have to be a daycare, but you do need either the social security number or tax ID number of the person or company that provides the care. This credit, called the Credit for Child and Dependent Care, can also be claimed if you pay someone to care for an aging parent. Keep in mind though that you do need a record of these payments, so if you pay someone cash and you know they do not plan to list it as income on their taxes, stay away from this credit.

If you or one of your children is attending college, there are two credits for which you may be eligible. The HOPE credit is for at least half-time students (six credit hours) in their first two years of college, and can only be claimed for a few years. However, the Lifetime Learning Credit can be taken for someone who took as few as one college course. If your tuition is expensive, your best choice may be the Deduction for Tuition and Educational Expenses. Simply enter the amount of tuition paid, and deduct any grants or scholarships you received. You can also claim expenses incurred for school supplies, such as computers, textbooks, even notebooks. Also, don't forget to deduct interest you may have paid on student loans. If you are attending a university, you will receive a 1098-T from them with this information, so wait to file your taxes until you have this form.

If you have money in an IRA, or if you contribute to a 401(K) through your employer, you should qualify for the Saver's Credit. This credit applies only to payments made by you, not employer contributions. If you are a head of household, and you earn $39,000 or less, take advantage of this credit.

Finally, if you made home improvements within the last couple years, look into the Energy Star credit. This credit gives you money back for improvements such as insulation, energy-efficient air units, windows, etc. The maximum credit amount is $500 though, so don't expect a big return for your buck. In most cases, the credit is only 10% of your cost. Tax season 2008 is the last year the Energy Star credit can be claimed.

Tax filing is not a difficult task that can only be performed by CPAs and Accountants. With a basic understanding of tax laws and credits, anyone with a W-2 can complete a tax return. If, however, you are still nervous about the task, simply file your taxes through an online service like Turbo Tax, or directly from the IRS website. These electronic resources can walk you through the process step by step, and answer questions along the way. The best part is for many families, their service is free.