When it comes time to file your taxes, the chances are good that you are ready to seize any and all deductions that may be available to you. Depending upon your filing status (i.e., whether or not you are married or single and whether or not you have children), you may find that you are able to deduct a significant portion of your earnings and save an extensive amount of money at tax time. Identifying all available deductions that apply to you and/or your family will help you prepare your finances well in advance of filing season.
Tax Allowances for Married Couples
If you are married, the IRS will require additional information about your status as an earner in the household before granting you any special deductions. For example, if you are married but do not have children, the chances are good that your living arrangement is most compatible with the one allowance filing option (i.e., both you and your spouse would each claim one allowance).
If you do claim two allowances on your W-4 form, you may discover that too little tax has been withheld from your pay, which, in turn, may result in a hefty tax bill when you file. The number of federal allowances for a married couple with two children depends on several factors, and it is a good idea to check out the IRS' interactive IRS Withholding Calculator to assist you in determining how many withholdings to take.
Credits for Dependents
The IRS Child Tax Credit provides parents with valuable tax savings during the filing season. Recently, as part of the 2018 tax year overhaul, the child tax credit has doubled from $1,000 to $2,000 for the tax year beginning on Jan. 1, 2018.
It is important here to make a distinction between a deduction and a credit. Unlike a deduction, a credit acts as a dollar-for-dollar reduction of your tax bill.
Child Tax Credit Requirements
That being said, there are a number of requirements that must be met in order for a parent to claim credits for their children. For example, the child you are claiming the deduction for must be under the age of 17. Additionally, the child must be legally classified as your dependent on your tax return. Also, of equal importance is the fact that the child in question must have lived with you for over half the tax year.
If these guidelines are met, the chances are good that you will be able to receive valuable tax savings this upcoming year. As always, be prepared to do your own research with regards to the tax deductions listed here in order to ensure that you are fully eligible for these valuable cost saving measures.
Mortgage Interest Deduction
If you itemize your deductions instead of taking the standard deduction and you own your home, don't forget to take the mortgage interest deduction. With few exceptions, you can claim all the interest you pay for your mortgage. The IRS even allows you to claim mortgage interest for your second home as well as your main home.
The definition of "home" includes a house, condominium, mobile home or houseboat. If you rent your second home, you cannot take the mortgage interest deduction unless you use the home for at least 14 days of the year or more than 10 percent of the total days that you rent it, whichever time frame is longer.