Tax Tips From a Single Parent

If you're a single parent who is confused by tax laws and terms, don't feel like you're out in the cold. If you happen to be one of these people then filing your taxes can be compared to an anal probe. Your sense of privacy goes right out the window as areas of your life are touched on in ways you didn't know they could be. In the end, all you really want to know is what the result is. Now for the good news.

As a self employed single parent, I've become so well versed on this issue that anymore, I just bring my own lube and almost yawn through the whole thing. Yea, it's like that. So, let me help you out with some important information about doing your taxes as a single parent. Let's start with the terms.

Dependent: This is a person that you take care of for over 50% of the year. A dependent can be a step child, foster child or a person that is unable to care for his or her self. The trick here is to be careful with step children if you are not the custodial parent. Otherwise, see the information below on establishing your right to claim this child as a dependent.

Qualifying Child: This is relative, step child or foster child that is a minor and is someone you can claim as a dependent.

Exemption: An exemption is an amount that is not taxed. For instance, if you have $30,000 in earned income, but have $10,000 worth of exemptions, your taxes will be based on $20,000.

Credit: A credit is an amount deducted from the taxes you owe or added to a refund your eligible for. For example, if you owe $3,000 but have a $4,000 credit, you will actually get a refund of $1000.

Now that the terms are a bit more clear for you, let's move on to some issues that are exclusive to single parents.

Who gets to claim the child?
If division of tax exemptions are part of your custody and child support paper work, then you would follow the rules set forth by your judge. However, keep in mind that most split exemptions are based on the idea that child support is up to date. So, if the noncustodial parent is behind in support but it is his or her year to claim the children, you may be able to claim the children instead depending on how it is worded in your agreement.

Matters like this that arose before 2008 can be dealt with by attaching a copy of this decree to your tax papers. For matters after 2008, the custodial parent must sign an agreement that states that he or she is waiving his or her right to claim the child. Keep in mind that even if the noncustodial parent pays for more than half of the child's cost of living, it is the custodial parent who is considered to be supporting the child more than 1/2 of the year so the custodial parent is the one who gets to claim the child.

How much do you have to earn to claim the child tax credit?
The minimum amount you have earn to be eligible for claiming the child tax credit is $3,000.

What is the child care credit?
A child care credit is a credit that is offered for those who pay for their children to be taken care of while they are at work or looking for a job. A parent of the child is not eligible to take this credit. So, if you have a daycare and your child is in it, you cannot take the credit for paying the daycare. However, this can still be beneficial to you since you may not have to pay for the child to be in that daycare so you won't have to claim that as part of your income either. If you employ someone to watch your child in your own home, you may still be eligible for this credit, but will also have to pay employment tax. The care taker must be identified in your tax papers. Also, in some cases, those who have funds set aside by their employer to assist in paying for childcare may not have to claim those funds as part of their income.

What about child support?
Those who receive child support do not have to claim the support as part of their federal income. Those who pay support may not deduct these payments from their income. Again, even if the noncustodial parent pays more in support than the custodial parent earns, the custodial parent is still the parent who gets to claim the child as a dependent unless otherwise stated in your court papers.

Explain how the Earned Income Credit works.
The Earned Income Credit (EIC) is for those who have limited financial means. However, that doesn't necessarily mean that the lower your income, the higher your credit. You have to earn a qualifying amount to get the maximum benefit from this credit. In a way, it's your reward for working enough to earn that much. Likewise the credit amount will go down if you earn too much.

It's impossible to provide exact numbers due to the individual circumstances that apply to everyone. For instance, the numbers for a father with 1 child are different from the numbers of a father with 3 children. Single parents with minimal incomes normally easily qualify for this credit. If you do qualify, you may even be able to reduce the amount of taxes taken out through the year, but personally I think it makes a nice end of year bonus to have it there.

References: http://www.irs.gov