For many people, your return looks similar this year than it did last year. But there are things that can affect your return which may have a large impact. That is what I want to talk about today.
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– Okay, so I know the first one is probably going to be children.
Exactly. So, did you know that once a child is born, if your income is low enough, you get a $2,000 per child tax credit? So that can definitely change the way your return works. When the child turns 17, you lose that credit. Sometimes we have that time when the child turns from 16 to 17 and the parents are used to getting a really nice refund and all of a sudden they don’t get that refund anymore because they just lost that $2,000 child tax credit.
As your income goes up and down, your earned income credit could sway drastically and really affect the refunds that you’re getting. But when you have children, you have daycare expenses. For daycare expenses, that can be a large burden on a family, but it can also be a nice tax deduction whether you run it through your company plan or take it as a credit on your tax return.
Then of course in the later stages, your child goes to college. For the first four years, you may be eligible depending on your income limit to a $2,500 credit. Once that child goes into their 5th year of college, that credit is reduced substantially because rather than getting the American Opportunity Credit, you potentially get a Lifetime Learning Credit, which is a lot less. So in those years we can notice that people’s refunds tend to fluctuate.
– Okay, so what about adults? Can adults change your return?
Oh, absolutely. One of the things that can change it a lot is the death of a spouse, divorce, even when you get married. When it comes to the death of a spouse, you’re always considered as married-filing joint until the end of the year. So this change doesn’t really take effect until the next year. But for divorce and for marriage, it’s your status as of the end of the year. So if you get divorced or married on December 30th, that’s your status for the whole year. Not just that one day.
Then there’s of course other things like loss of job and unemployment, cancellation of debt if there is a credit card or something that cancels the debt you owe to them, distributions from retirement plans, and just the Affordable Care Act and the subsidies that go with that – we’ve talked about that on prior shows and that can have a big impact.
– What about senior citizens?
Senior citizens are another one. Getting married later I life can really have an effect on your taxes. Taxable social security benefits are the ones that we see the most.
Let’s say that you have two individuals and together they don’t make a lot of income. Generally their social security benefits are not taxable. But now you combine their incomes together and their social security benefits become taxable. That can be a huge amount for some people and really affect their taxes.
Also, when you turn 70 and a half you get the required minimum distribution. Then there’s other things like gifting directly through an IRA that we’ve talked about on prior shows.
– Okay, what about things that don’t affect your taxes?
There’s a lot of things people ask us about, and they say, “Do I get a deduction for this or do I get income for this?” There’s things like burial expenses, funeral expenses, credit card fees that aren’t for your business, home repairs, life insurance premiums, and a lot of times rent payments. There’s no deduction on the federal side or a lot of times on the state side allowed
for that. Those don’t really affect your taxes.
Talk to your CPA to determine if any of the above ideas may affect you.