The Single Parent's Guide To Income Tax
For single parents, the approach of April 15 can be a mixture of pain and joy. On the positive side, you may get a decent refund. On the other hand, it can be yet another reminder that filing separately can sometimes be more expensive than filing a joint return. Single parents have additional concerns that do not affect couples filing jointly. If you have split custody of your children, which parent will write off the children as dependents? If you still have joint ownership of certain properties or financial accounts, but filing separately, how are these handled?
Income level can also make filing as a single parent all the more difficult. If you go slightly above the threshold for a tax bracket, you may find yourself owing money, even when you include your dependents. For a single parent with a limited income, a huge bill can be devastating. There's certainly no substitute for working with a skilled tax preparer or preparation service. There's also no substitute for having a firm grasp on the issues that are uniquely important to you as a single parent.
Whether you're planning to tackle this year's taxes yourself or want to ensure you don't go into a consultation with your preparer empty handed, here are a few key issues unique to single parents you may want to consider.
File Using the Head of Household Exemption, not the Single Exemption
The taxable income brackets change every so often as inflation rates and other indicators change. You will want to check which bracket you currently fall into because this affects the assessment. As a single filer with children, you may find that you owe less than when, and if, you were married. If you are recently divorced, what you're paying now will differ very noticeably from when you were married.
As a single parent, you want to make sure that you are paying close attention to the Personal Exemptions section. If you can claim any children as dependents and you are responsible for more than 50% of the household expense, you should be using the Head of Household Income Bracket and not the Single Bracket. There is personal exemption difference of $5,300 between these two brackets, so as a Head of Household filer, your taxable income drops by $5,300. This is potentially enough to place you in a lower bracket and will lower your tax burden overall.
Be Clear on Who is Claiming the Children
The IRS is fairly stringent on which parent can claim children. For those with shared custody, this comes down to who is considered the custodial parent, which is determined by who the child lived with longer during the year. In a typical year, this would be a child who lived with the parent for at least 183 days during the year or more. The IRS bases the definition of a custodial parent on time spent with you, not on who pays more of the child's expenses, so even if you pay more toward your child's well-being, you may not be the custodial parent
. If you contribute over 50% of the expenses toward taking care of your child but have your child for 49% of the time, you will still not get to claim the child as a dependent.
There are only two exceptions to this rule. If both parents agree, or the custodial parent wishes to do so, they should sign Form 8332, the Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. This form is a special exception for divorced parents only as an option for resolving arguments over who should be allowed to include the children as dependents.
The second exception exists with leap years. During leap years, and for parents who have 50/50 split for custodial rights, the parent with the higher income maintains custodial rights for that year and is the sole parent allowed to include the children as dependents. The higher income wins out only in this unique case.
Familiarize Yourself with Credits and Deductions Relevant to Adding Dependents
If you are adding your children as dependents and you're a single parent, there are a few important deductions and credits that might benefit you. Note that deductions and credits are not the same things. Deductions lower your tax burden (much like personal exemptions) but may not lower how much you owe overall, while credits are a dollar-for-dollar decrease in what you owe.
Child Tax Credit
If you are including your kids as deductions, you can also utilize the Child Tax Credit for each qualifying child. This credit is worth up to $1,000 for each child. A child qualifies if he or she is under 17 years old, is a U.S. citizen, and has not contributed more than half of his or her expenses. If you are a single parent, but still legally married, you will likely be filing a separate return. In this case, you cannot use this credit if your income exceeds $55,000. If you are unmarried, the benefits to this credit fade after your taxable income reaches $75,000 or more.
Earned Income Credit
This credit operates like a deduction and credit at the same time. It lowers your taxable income amount and can also result in a larger refund. The EITC is designed for those with low or moderate incomes and uniquely benefits single parents with dependents.
Child and Dependent Care Credit
This credit is designed to help you write off a portion of your child care expenses. The amount you can write off can be no more than $3,000 for one child, or $6,000 for two or more children. If you are separated but not divorced and filing as married but separated, you cannot utilize this credit.
Keep all of this information stored away for this year and future seasons, but be alert to the possibility of year-to-year changes.
We firmly advise you to consult a professional before filing. It's a complicated procedure, and if you make a mistake, you may discover that the IRS has no sense of humor whatsoever. It is still a good idea to be familiar with your situation and the options you may have so that you can discuss them with your preparer and work from a sound base of knowledge!