Key Strategies To Help Reduce Your Tax Bill
Whether you're enjoying newlywed bliss or the joy of a newborn, it's time to start getting your finances organized as a couple or family. This means getting your tax house in order. Having dependents is one of the best tax benefits available. It can open the door to a large number of tax deductions and credits that can lower your tax bill. For example, each qualified dependent you claim can reduce your 2013 taxable income by $3,900.
Here are some tips to help maximize your tax refund:
Who qualifies as a dependent? Most of us know you can claim a dependent exemption for your children on your tax returns, but many people forget they might be able to claim exemptions for other loved ones including elderly parents, other relatives and even a boyfriend or girlfriend they have been supporting. To help taxpayers navigate whether a loved one counts as a dependent, there are a few qualifying tests that must be met including the citizen or resident test, dependent taxpayer test, joint return test and qualifying child or qualifying relative tests.
Just got married? If you're legally married on Dec. 31, you're considered married for the full year and must file as either married filing jointly or married filing separately. %VIRTUAL-article-sponsoredlinks%Couples who are married and filing jointly may benefit from lower tax rates on their combined income. Using the married filing separately status may make you ineligible for valuable tax deductions and credits related to your kids. If you're married you have to file as married filing jointly in order to take advantage of these deductions and credits.
One of these valuable tax credits is the Earned Income Tax Credit, worth up to $6,044 for 2013. Your income and number of qualifying children will determine the actual amount of your Earned Income Tax Credit. The maximum credit you can qualify for is $6,044 with three or more qualifying children, $5,372 with two qualifying children, $3,250 with one qualifying child and $487 with no qualifying children depending on your income. The credit is phased out the closer your income gets to the maximum income limits.
Tax tip: New for 2013, legally married same–sex couples will now be able to file as a married couple, and take advantage of valuable tax benefits together.
Did you have a new addition? Your family is now eligible for new tax deductions that are frequently overlooked. Most importantly, your little one is now another exemption that represents a deduction of $3,900 for 2013. Another possible tax benefit is the Child Tax Credit, which is worth up to $1,000 for each child under the age of 17.
Tax tip: Not everyone is eligible for the Child Tax Credit. Eligibility is based on adjusted gross income. For 2013, the phaseout for the credit begins at $110,000 for those filing jointly and $75,000 for those filing as single. Married filing separately begins phasing out at $55,000.
It's also possible to claim the Child and Dependent Care Tax Credit, which allows you a credit of up to $2,100 for qualified dependent care cost for two or more children. And, if you adopted, there is a generous tax credit for those expenses as well. The Adoption Tax Credit is refundable, and it can help with costs incurred during the adoption of your new addition.
Getting married and bringing a new child into your family are both big events to celebrate. They come with financial advantages to help offset some of your costs. Remember these tax benefits at tax time.
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