Last-Minute Tax Filing Tips for Parents
Having kids is expensive, so make sure you’re not missing the benefits or tax deductions you’ve got coming.
If there’s anything that might make changing a dirty diaper seem like a better option, it’s sitting down to tackle taxes. But, like those dipes, it has to be done. And just so you know: really soon. The good news? There are plenty of tax benefits to be had from those adorable little deductions—ahem, kids—of yours. “It can easily be thousands of dollars’ worth,” notes Lisa Greene-Lewis, lead CPA, American Tax & Financial Center at TurboTax. Some things to keep in mind if you’re one of the estimated 30 percent of Americans who’s waited until the final weeks to file (hey, we’re not judging):
Get Your Stuff Together
Prep the paperwork. Whether you’re doing your taxes yourself or taking them to a tax preparer, that time you spend prepping is priceless in making the process go smoothly. Besides the basics (W-2s, forms for interest earned and investment dividends, etc.), you’ll also want to have a summary of real estate taxes you paid and your total health care costs; receipts to back up any claims for all those outgrown clothes and no-longer-loved toys you donated to charity; a summary of your childcare costs, along with the tax ID numbers for your childcare provider; and Social Security numbers for your dependent children.
Sneak a peek. Fear about that final number keeping you from even getting started? With TurboTax’s free TaxCaster app (on iTunes and the Google Play store), just punch in some basic numbers and it’ll give you a fast ballpark estimate of your bottom line, whether it’s a refund or a bill. It’ll also suggest the right tax software program for you to use.
Watch for Common Mistakes
Baby? Oh, right! OK, maybe it’s not so common, but it happens. “If you only see a tax preparer once a year, he or she probably doesn’t know about you or your life, and, yes, I have heard about parents forgetting to mention they had a new baby until the preparer asks,” laughs John Vento, president of John J. Vento, CPA, P.C., and author of Financial Independence (Getting to Point X): An Advisor’s Guide to Comprehensive Wealth Management. (Blame it on lack of sleep!)
Isn’t that a little personal? The key is to assess all those so-called “life changes” you had in the previous year, right up until the final tick of December 31—having or adopting a baby, starting or losing a job, getting married, separated, or divorced, putting a child in daycare or sending one off to college—because they’ll have an impact on your tax situation. If you’re using tax software, it’ll prompt you on these events, but it’s up to you to be sure your preparer knows all the personal details.
If I’m a “single parent,” I’m single, right? Maybe as far as your Facebook status goes, but not necessarily in the eyes of the IRS. “This is one of the more common mistakes I see: people choosing the wrong filing status,” says Thomas DiLorenzo, senior manager at Ernst & Young, Employee Financial Services, and contributing author to The Ernst & Young Tax Guide 2013. “Especially with more single parents now, and unmarried parents, they might tend to think ‘single’ when they file. But in almost all cases, you’re much better off financially to file as ‘head of household.’”
Is that a 7 or a 9? One of the easiest parent-specific benefits is the child tax credit, worth up to $1,000 per eligible child, notes Kay Bell, Bankrate.com’s tax expert. “There are no records to keep or extra forms to file to claim it,” she says, although you will need to fill out a worksheet to determine your exact credit amount (it starts phasing out at different income limits, depending on filing status). The catch? “Each child must have a tax identification number, generally a Social Security number, to claim the credit,” says Mark Steber, chief tax officer of Jackson Hewitt Tax Service. Not filling in the numbers for kids—or filling them in incorrectly, or mixing them up between children—is one of the more common errors, Steber says, so take your time on this one, no matter how close April 15 feels. If you’ve got a new family addition and forgot to get your baby a Social Security number after she was born (this also happens), you may still have time to apply for one (you can check with the Social Security administration to see how quickly they can get it to you: ssa.gov). But if you don’t have one in time, file an extension (you’ll still need to pay anything you owe by April 15, though). Is your baby a me-and-my-partner hyphenate? These are another source of common errors. Be sure to enter his name exactly as it appears on his Social Security card, stresses Steber.
But I’ve always done it this way! If you’re new to this whole “filing as a parent” thing, you may be missing out by doing things the same way you always did before, says Ernst & Young’s DiLorenzo, a brand-new dad himself. “Just one example is medical costs,” he says. “Because these have to be in excess of 7.5 percent of your adjusted gross income before you can deduct them, you might not have done it before, but having a baby is expensive, so it’s worth taking a look if you had a baby last year. Plus, a lot of people overlook things that qualify as medical expenses, such as the cost of a breast pump or the costs of things you did in preparation for giving birth, such as Lamaze classes. Those might put you over the threshold.”
Don’t Miss Any of the Biggies
Child Tax Credit. “Every parent who has a dependent child under age 17 by the end of December 31 can claim the child tax credit as long as their income is less than $75,000 ($110,000 if married filing jointly),” says Jackson Hewitt’s Steber. Over these income limits, the full credit of $1,000 starts to phase out.
Dependent Exemption. As long as your child lives with you for at least half the year and is under age 19, or is under 24 and a full-time student, you can claim this $3,800 exemption. If your child is permanently and totally disabled there are no age requirements, TurboTax’s Greene-Lewis adds. Divorced? Be careful. “If a couple has a child and they’re no longer together, they often don’t discuss which is eligible to claim the child, so they often both try to claim the dependent,” says Greene-Lewis. “Only one person can. In most cases, it’s going to be the custodial parent, although there are exceptions.”
Child and Dependent Care Credit. If you’re a working parent who relies on childcare, you know how pricey it can be, so don’t miss this one, which covers at least a piece of it. “The credit is up to 35 percent of the cost of childcare provided while you, and your spouse, work if the child is under 13 or unable to care for themselves,” says Jackson Hewitt’s Steber—the lesser of $3,000 ($6,000 if more than one child) or the actual cost paid, he notes, with a maximum credit of $1,050 for one child and $2,100 for more than one child. What a lot of parents don’t realize is that this credit can also apply to day camps and even specialized summer camps, such as baseball camp, says Ernst & Young’s DiLorenzo. “You still need to meet the same criteria—for child’s age and the reason for sending him there (so the parents can work)—and the camp or program has to have a tax ID number or be tax-exempt, such as a church daycare program,” he adds. “And overnight or sleep-away camps are not included.” Nanny? This also falls under the Child and Dependent Care Credit, TurboTax’s Greene-Lewis says, with one big asterisk: “You need the nanny’s Social Security number or tax ID.”
Keep These in Mind, Too
Adoption Credit. Adopted last year? You might be able to claim this maximum $12,650 credit, subject to income limitations (if your adjusted gross income is between $189,710 and $229,710, then your credit will be reduced; if it’s above $229,710, it’s eliminated), TurboTax’s Greene-Lewis says. Did your employer offer adoption assistance? “If your company paid adoption expenses up to $12,650, you can exclude that from your income for tax purposes,” Vento notes.
Educator Expenses. If you’re a teacher, you can deduct up to $250 of your out-of-pocket expenses for classroom supplies, with some limitations (you have to have worked at least 900 hours, for instance). Went over? “You can put it under unreimbursed employee business expenses under ‘miscellaneous itemized deductions,’” Ernst & Young’s DiLorenzo says, “as long as those total more than 2 percent of your adjusted gross income.”
Charitable Contributions. You’ve got kids, so you’ve probably got a lot of outgrown clothes and stuff that you cleaned out of closets and from under beds last year. If you donated them to a qualified organization, and got that all-important receipt, you can deduct the value, up to a certain amount.
State Tax Deductions on 529 Plans. Started or added to your child’s tuition savings plan last year? In some states, you may qualify for a state tax deduction for your contributions into the 529 plan, says Vento. “For example, in New York state, you would be able to deduct up to $10,000 for your child’s 529 plan contributions,” he says. “This could reduce your NYS tax by over $1,200.”
The American Opportunity Credit. If your kid’s already using her 529 money as a college student, you can claim this tax credit for up to $2,500 for college-related expenses for her, subject to income limitations and other restrictions.
And Remember: Don’t Panic
Get help now… Stumped? Even if you’re doing your taxes yourself, help’s not far away. TurboTax offers one-on-one answers to all questions from tax professionals via phone or live chat, for instance. And while it certainly is their busy season, you can probably still get in to see a tax preparer. And keep in mind: Tax-prep costs are deductible!
…Or get more time. Just can’t get it done? Filing form 4868 buys you an extra six months to file federal taxes, no explanation needed (though we’re sure you have a good one). “Just make sure you pay any taxes due with the extension because it’s only an extension of time to file the tax return, not an extension of time to pay any taxes you may owe,” notes Jackson Hewitt’s Steber. And don’t worry about making yourself an easier target. “Less than 1 percent of taxpayers are actually audited—and it has nothing to do with filing an extension,” TurboTax’s Greene-Lewis assures.