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Tips to Help you Cut your Tax Bill

If you receive an unexpected tax bill it can potentially bring on a lot of stress. There are a few things you can do to cut your bill legally. However, you might need to put a bit of effort in but it could be worth it.
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Adjust your W-4
This is the form that you need to hand to your employer. This form tells them how much tax they need to withhold from each pay check.  If you have a big tax bill looming, you might be able to raise the withholding until the next tax year.  If you received a large refund, you could reduce the withholding. This will mean you’re less likely to be living on less money.

Fund an FSA
Did you know that when it comes to your personal taxes you can add tax-free dollars to your FSA every single year? If your employer offers you a flexible account you could use it to your advantage. The latest limit is $2,700 and some employers might allow you to carry around $500 over to the next tax year.

Save Money for College
If you would like to save money so your child can go to college, you could potentially reduce your tax bill. Consider making contributions to your 529 plan. You won’t be able to deduct the contributions on the federal income taxes. However, you could deduct them on your state return. This is only the case if you are putting money into your state’s plan.

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Record Your Medical Expenses

If you have had dental care or expensive medical treatments, you should keep hold of your receipts. You can deduct any expenses that are 10% or more than the adjusted gross income for that year.  Let’s imagine that your income is $50,000. You would be able to deduct anything beyond the first $500.

Work on Your Timing
There can be a huge difference between doing your taxes on the last day of December and the first day of January. If you think you have an expense looming try to pay it this year rather than the next. So, for example, having that tooth extracted now means you could meet the medical expenses threshold. If you were to wait until next year you could lose out on your deductions.

Donate Your Money
When you donate money to charity those contributions are often times deductible. What’s more, is those donations do not always have to be in cash. If you have donated household items, food, or clothing you could have a lower tax bill. However, you will need to make sure that you got a receipt for your donations and they went to a recognized charity.

It is possible for you to reduce your tax bill, you just have to take some extra steps. By implementing those things, it can lead to you paying less in taxes every year. Follow the above tips and you’re less likely to get an alarming tax bill.

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How Having Kids Changes Your Taxes

Having a child changes everything. Your relationship with your partner, your work schedule, your sleeping patterns—there are few things a new baby doesn’t have an effect on. Many parents are prepared for the sleepless nights, the need to switch to the minivan, and the decrease in social hours with friends, but have you thought about how your new little bundle of joy will affect your taxes? While you often hear how expensive it can be to raise a child, there are also numerous tax breaks and credits to take advantage of. Keep the following facets of the tax system in mind and give your finances the boost they need, from your little one’s birth to their college days.

Use Exemptions to Your Favor

After having a child, you’re allowed to claim them as a dependent on your taxes to receive an extra exemption. This can help reduce your AGI, or adjusted gross income. The government uses your AGI to determine how much you owe, therefore, the lower your income (after exemptions), the lower your tax bill. There are limitations to this, but most can look to save thousands of dollars. Siphon those saved dollars into a college savings account and you’ll be amazed at the difference it makes in paying for your child’s upcoming educational career.

In the Case of Adoption

Perhaps you’re adopting a child. This process is not an inexpensive one, but the IRS recognizes these costly expenses by offering the opportunity to claim these expenses on your income taxes. Last year, any adoptions completed in 2015 allowed a federal adoption tax credit of up to a $13,400 per child. The amount you receive depends on your income. If you and your spouse make less than $291,919, you’re eligible. However, there are limitations. Because this is a tax credit, it isn’t refundable. That means you must owe the federal government some type of income tax, and you won’t be paid out the extra money left over, if any. The adopted child cannot be a stepchild, and they must be under the age of 18 or unable to take care of themselves to qualify.

Child Tax Credit

This refundable credit is designed to reduce the taxes you’re liable for, and can be awarded in amounts up to $1,000 per child. The amount of the credit awarded depends on income and the number of children living in your home. If you claim singly or as the head of the household, you’re ineligible for this credit if you make above $75,000. If you’re married, filing jointly, you must make less than $110,000 to qualify. If you’re confused about what will best work in your financial favor, speak with a professional who can help you determine your filing status.

When it Comes to College

If your child is already in college, take advantage of the American Opportunity Credit. This credit covers certain expenses associated with the first four years of college. There are regulations about how and who qualifies for this tax credit: your child must be in pursuit of a credential or a degree, and must be enrolled as a half-time student at least for tax year. They must also have no felony drug convictions on their record. For each student, the maximum credit you can procure annually is $2,500.

You should also keep the Lifetime Learning Credit in mind. This can help cover undergraduate costs for a student that does not qualify for the American Opportunity Credit, whether that be because they have a limited course load (are enrolled in school less than half-time status) or they’ve already completed their first four years of college credit. This credit can cover expenses including tuition and enrollment fees, along with books and course materials.
Child Care Credit

If you work full time and you must enroll your child in day care, most of those expenses are deductible on your income taxes. This is a nonrefundable tax credit. In order to qualify for the Child Care Credit, you must show proof of payment to a licensed childcare provider while you’re working or in search of employment. The child must be under 13 years old, and you cannot claim this credit if you’re married, but filing separately. This credit can award more than $3,000 per child per year.

The ins and outs of the tax process become more convoluted after having a child. If you’re unsure about which credits and exemptions you qualify for, don’t be afraid to talk with a professional to discover how you can get on the right financial foot- there are probably more than you think!

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It's tax season

Well it's that less than fun time of year- tax season. We have a pretty decent system of keeping up with our paperwork throughout the year to make it easier to file. I guess there still seems to be so much else we have to gather to ensure we are getting as much money back as we can as well as being thorough. I have thought about doing our taxes ourselves but I get all scared that we will mess something up. We just go up to the same place we have for years (a mom 'n pop's spot) and just pay them to do it correctly. I have always had friends and family tell me how easy it is to do yourself but there are just some things I am not willing to mess with!

So what about you? Are you one of the brave people that does it yourself or are you a wimp like me?
Shelly, Mom Files
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