Tax Topics: Understanding Deductions
The W-4 that you are required to fill out when starting a new job informs your employer how many people you will be claiming on your tax return. The more people you claim, the less money will be withheld from your paycheck. Although counting everyone in your family will give you a large paycheck, it can affect your tax liability at the end of the year. There are numerous factors you should consider when determining the number of allowances you will claim on your W4. Continue reading to find out how your unique tax situation can affect the number of allowances you should claim. Other Resources to help reduce tax
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The first thing to consider when deciding on the number of allowances you will take is the number of people in your household. If you will be claiming more than $1,500 in childcare expenses or you have more than one job, it can impact your tax return. Finally, if your spouse works, it can place you into a different tax bracket, which can affect your tax return.
If you claim fewer allowances, more tax will be held. This means your paycheck will be slower; however, it can lead to a bigger tax refund. A tax refund is the amount of money you overpay the IRS throughout the year.
If you claim fewer dependents and overpay, you are in essence giving your money to the government tax-free. However, it also means you may get a larger tax refund when you file your taxes, which some people enjoy receiving. A W-4 withholding tax calculator helps you determine how many allowance you should claim.
Filing Statuses- What Are They ?
Did you know that your filing status (single, married or head of household) can affect the amount of money you will be receiving on your taxes? This is because your filing status determines several things, including the type of credits that you are eligible for, your standard deductions, your tax and your filing requirements. These things all play a role on whether you will receive a refund or end up owing taxes. There is a total of five filing statuses, including qualifying widower with a dependent child, head of household, single, married filing a joint return and married filing separately.Determining Your Correct Filing Status – IRS.gov
Understanding the Earned Income Tax Credit (EITC)
The earned income tax credit is available for working families and individuals who have a moderate to low income. This tax credit decreases the amount of tax owed and may result in a refund. In order to qualify, you must have a valid Social Security number, have an income that is within the federal guidelines for the EITC, be a US citizen (or a be married to an American citizen if you are a non-resident alien), your income comes from an employer, from a farm or from self-employment, you cannot be claimed as a dependent on another person’s taxes, be aged 25 to 65 and have a qualifying dependent who lives with you at least half of the year. In order to receive this credit and potential tax refund, you must file a tax return, even if you do not owe taxes.Tip: Using Turbotax coupons to save up to 40% on your tax bill Or if you go to face book for them here
Dependent Care Credit
Child and dependent care tax credits are based on the amount you paid for towards child or dependent care expenses for your qualifying dependent. The total expenses that you can claim are $3,000 for one dependent and $6,000 for more than one dependent. Even if your employer provides dependent care benefits you can claim this deduction without deducting the employer dependent care benefits.
Who is a Qualifying Dependent?
In order to be classified as a dependent, the child must be under the age of 13 or a spouse or dependent who is incapable (mentally or physically) of caring for themselves. Finally, in order to qualify as a dependent, they must live for you for more than half of the year.
Criteria for Claiming the Child and Dependent Care Credit
If married, you must file a joint return. The caregiver cannot be a spouse, the parent of the dependent or another of your dependents. Your dependent must have a valid Social Security number. The name, address and Social Security number of the caregiver must be included on your tax return.