Hey, Uncle Sam -- can I get a break?
The end of the year is upon us and has come and gone – Christmas displays and Muzak in retail establishments were a dead giveaway. But many of us, when the year wraps up, will have to cinch our belts another notch and wonder how much we may shell out in taxes this year.
There’s no disguising this: in all the political talk about ‘family’ this and ‘children’ that, many politicians either forget or purposely disregard the true disadvantaged individual when it comes to taxes: the single childfree taxpayer. Especially, more so, the single childfree taxpayer who only has a W-2 to their name. When there is no chance to claim a dependent, even with the IRS redefining ‘dependent’ to include an aging parent, or claim a child tax credit, what can the childfree US taxpayers do to avoid paying anything more than necessary at Tax Season?
Steven, an accountant in New York, is the first to admit that there are few deductions for the single childfree taxpayer, but there is one option to avoid writing that big check in April (which may come with penalties): withhold, withhold, withhold. “One of the secrets about taxes is making sure that enough tax money is withheld on a paycheck up front,” he writes. “That way there should never be a question of owing tax money.”
Usually, you’re asked about your withholdings when, at first hire, you fill out a W-4 form. On that, read the text carefully and consult with your human resources department if you can withhold extra in the event that your current settings on tax withholding are not enough and you end up owing. Bear in mind that you can always fill out a fresh W-4 for your employer if you feel that you do not have enough in withholdings.
Aside from that, where else can deductions to be found?
- College tuition: While you are in school, there is either a HOPE (first two years undergraduate) or Lifetime Learning (undergraduate after two years) credit that you can claim for your tuition. Taking graduate classes? You will still get a 1098-T and from there, when you are working on your taxes, whether in an accountant’s office or on your own, you will be able to see which credit you can claim.
- Loan interest: Whether student loan interest, mortgage interest or, in some eligible cases, car loan interest, it is deductible. You will receive a 1098-E in that case and the eligible amount will be noted on it.
- Self-employed expenses: If you are freelancing in any way, shape or form, you will receive a 1099-Misc, which is a statement of miscellaneous income. You also get one of those if you receive royalty income. You will note that there is no tax withheld on a 1099-Misc but before you think that this is the worst thing about freelancing, think again: you can deduct any work-related expenses against the tax bite. Meaning, the gas costs for driving out to clients, the ink cartridges for your printer, the fees you pay for marketing, Internet and telephone – all of this is tax-deductible if you are freelancing.
- Medical Expenses: No insurance? Large medical bills? Medical bills that clock over the standard deduction? No problem. Itemize those under Schedule A and that will be your tax deduction rather than the standard. Note also that the IRS tax deduction varies depending on whether you file single, married or head-of-household, so check the IRS website for the exact amount, because in order to itemize those expenses, they must exceed the standard deduction. Remember, you can only deduct what has already been paid; i.e. if it shows on either CC bills or bank account ledgers.
What a lot of people do not know about – and this is a well-kept secret – is that you can always pay quarterly estimated tax in addition to what you have withheld. Why pay extra, you ask? Because if you underpay in your withholdings, there is an underpayment penalty. Why pay a penalty? E-xactly.
Which is why, when you are working on your taxes, look into setting up the Form 1040-ES (estimated tax payments are also available for individual states) and setting an amount that you want to pay into your tax bite every year on a quarterly basis. These payments are optional and the overpayment, instead of being refunded to you, can be credited toward the following year’s bite. The more you roll forward, the more you save in the following year and at any point, you can have the overpaid tax refunded to you – and who knows how much you will be able to save if you let the overpayment build up over a few years?
In all, if you are childfree and filing taxes in the US, you may still be eligible for a deduction or two. Not in school, repaying loans? Deduct the interest. New homeowner? Deduct the mortgage interest. Freelancing? Deduct what you spend on in the everyday. Of course, check with your friendly neighborhood CPA on strategies to save money in the long run.
Copyright Katharine Wyse. Published 1 January 2009 in The Zone.
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