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Tax Topics: Understanding Deductions
Understanding tax deductions helps you claw back some tax money from the government and here we will outline a few ways to get some of your hard earned cash back . The greater amount you claim, the less money is going to be withheld through your paycheck is the desired outcome for most people whilst still paying your fair share along the way. There are several factors you should look at when determining the amount of allowances you may claim in your W4. Read more to learn the way your unique tax situation could affect the number of allowances you can claim without the IRS looking closer at all your affairs .
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One thing to consider when picking out the allowances is the number of individuals in your household. If for example you are claiming greater than $1,500 in childcare expenses or you have more than one job, it may impact your overall tax liabilities. If your spouse works, it could place you right into a different tax bracket, that may affect your tax return as well.
What this means is your paycheck will likely be smaller however, it can result in a larger tax refund. A tax refund is defined as the amount of money you overpay the IRS throughout every season and is due to be refunded once your return has been filed , for that reason we recommend products like Turbotax as the “tried and true” in the industry for getting great results with tax refunds for individuals, Students etc. See our complete review of Turbotax here to understand it more.
In the event you claim fewer dependents and overpay, you will be in essence giving your hard earned money for the government tax-free. However, it also means you might get a more substantial tax refund if you file your taxes, which some individuals enjoy receiving. A W-4 withholding tax calculator can help you determine how much to claim without overstepping the boundaries .
Did you know that your filing status (single, married or head of household) can affect the amount of money you will end up receiving on the taxes? It is because your filing status is determined by numerous things, including the sort of credits that you will be qualified to receive, your standard deductions, your tax along with your filing requirements. These things are the main contributors to whether or not you may receive a refund or end up owing more taxes. TOP TIP : if you are stuck with how or what to file and need help use TurboTax Live . It provides you with a real CPA who can talk you through every aspect of filing you taxes correctly.
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There are a total of 5 filing statuses, including qualifying widower with a dependent child, head of household, single, married filing a joint return and married filing separately.
Understanding the Earned Taxes Credit (EITC)
The earned tax credit is accessible for working families and people who are on a “moderate to low income” status. This tax credit decreases the tax owed and may result in a refund on many occasions . In order to qualify, you have to have a legitimate Social Security number, provide an income that is within the federal guidelines to the EITC, be described as a US citizen (or perhaps a be married to an American citizen should you be a non-resident alien), your wages emanates from a business, from your farm or from some form of self-employment, you must be aged 25 to 65 and also have a qualifying dependent who lives with you for at the very least half of year. In order to receive this credit and potential tax refund, you need to file a taxes, even if you do not owe taxes, you still need to file and this is where a lot of people trip themselves up assuming that there is no need to file since the return is a net nil figure, this situation is why many celebrities have found themselves in court facing the IRS in the past.
Dependent Care Credit
Child and dependent care tax credits are based on the amount you paid for towards child or dependent care expenses for the qualifying dependent. The entire expenses that one could claim are $3,000 for starters dependent and $6,000 for more than one dependent. Even when your employer provides dependent care benefits you can claim this deduction without deducting the employer dependent care benefits.
Who May Be a Qualifying Dependent?
To be classified as a dependent, the little one needs to be under the age of 13 or a spouse or dependent who may be incapable (mentally or physically) of caring for themselves. Finally, as a way to qualify being a dependent, they need to live with you for longer than half of a year.
Criteria For Claiming the Child and Dependent Care Credits
If married, you should file a joint return. The caregiver can not be a spouse, the parent of the dependent or any other of your respective dependents. Your dependents need to have a valid Social Security number. The name, address and Social Security number of the caregiver needs to be included on the tax return.