This was originally published on Monday, March 20, 2017, in the Pacific Daily News. Click here to subscribe to the PDN.
No matter what your children’s ages are, raising them can definitely be expensive and stressful. As parents, we focus on the raising the children and often have to weigh the cost of money versus the cost of time.
With life’s everyday hustle, we tend to lose sight of financial shortcuts that may make life a little easier. But sometimes it’s worth taking the time to find ways to make your dollar stretch. Tax time should be no different.
If you meet certain criteria, you could be eligible to claim tax deductions and credits. Some of these deductions and credits could save you money that can ease some financial shortcomings of raising children.
Adjust your withholdings. Did you have a baby recently? If so, don’t forget to get with your employer and adjust your tax withholdings. Adding a new child to the family can give you more tax deductions when filing.
Your employer deducts taxes based on the number of allowances you claim on your W-4. When you have too much withheld from your paycheck, you basically are giving the government a loan on your money. You can be using that money to invest, save, or to reduce debt.
On the other hand, having too little withheld from your paycheck could mean you pay at tax time rather than get a refund.
The goal is to balance out to zero, so you don’t pay extra tax or receive a big tax return. You can calculate your withholding easily by going to the Internal Revenue Service’s tax withholding webpage, or go online and look for a free tax withholding calculator.
You can adjust your tax withholding at any time if you or a spouse get a second job, change jobs, were unemployed, got married or divorced, or had a baby or adopted a child.
Earned Income Tax Credit. Many qualified taxpayers may overlook this tax credit, but it can save them thousands of dollars. The eligibility is limited to low- to moderate-income earners. You must be 25 years and older, but younger than 65. Your dependents must have a valid Social Security number. According to the IRS, for tax year 2016 the maximum credit you can obtain this year is $6,269.
If you are self-employed, you may still be eligible for this credit. Unfortunately, if you receive more than $3,400 of income in 2017 from investments, stocks, rental properties or inheritance, you will be disqualified from the credit.
Higher Education Credits. Did you recently send a child to collage? Parents can claim two credits for higher education:
The American Opportunity Tax Credit: An eligible student can’t have completed four years of schooling, must be enrolled in at least one academic semester, and must maintain at least half-time status in a program leading to a degree. For more on eligibility, visit the IRS website. Only one American Opportunity Credit is available per eligible student each tax year. The maximum annual credit per student is $2,500.
The Lifetime Learning Credit: You must have made tuition and fee payments to a post-secondary school (after high school) during the year. The Lifetime Learning Credit has no limit, as long as your child participates in an eligible degree program.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at firstname.lastname@example.org and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.