DIVORCE AND MONEY MATTERS PART 1 - Taxes and the Single Parent

There is so much information out there for tax tips and great ways to reduce your taxable liability. The often forgotten group out there are single parents and there are many out there who might not be aware of what potential deductions and tax credits they may qualify for. We will be having a three part series on divorce and money matters over the next week.


Here are a few to consider:

1. File as Head of Household - This has two main advantages - paying less tax overall as well as being able to claim the higher standard deduction. How do you qualify? If you are unmarried on the last day of the year and you have provided over 50% of the funds needed to maintain a household and your children live with you for more than half the year - you qualify.

2.The Dependency Exemption - Single parents that do file "Head of Household"for 2011 will be able to claim an exemption of $3700 for themselves and for each qualifying child. Note - only one parent can claim each child as a Dependant for tax purposes. It must be decided amongst both parents who will claim each child.

3. Child Tax Credit - What is the difference between a credit and an exemption? A credit is subtracted from the total amount of taxes you owe. The maximum credit per child for 2011 is $1000. This can have a great impact on reducing your taxes. The qualifying child must be under the age of 17 on the last day of the year.

4. Child Care Credit - If there is someone who cares for your child while a single parent works, they may be eligible for the child and Dependant care expenses. The child must have been under the age of 13 for at least part of the year. The childcare provider may not be the child's other parent or anyone who can claim the child as a dependent. There must be actual earned income during the year in order to qualify as well.

5. Earned Income Tax Credit - This credit was designed for low-income working families.


Common Questions often asked by single parents

1. Who gets to claim the children?
Typically it is the custodial parent. Whomever the children are living with for the majority of the year will claim the children unless an agreement states otherwise.
Also, the parent who claims the dependent exemption also has the right to claim the Lifetime Learning credit.

2. Is child support taxable or deductible?
Child support has no affect on your taxes (or your ex’s). It doesn’t count as income. It’s not deductible.

So why should you outsource bookkeeping?

Wading through invoices, bank statements and mounds of receipts can be quite the task, especially when small business owners are trying to put their priorities on what they originally set out to do, run successful businesses. Before you know it what should have been done last week, two months ago; before you know it another year has passed and you don't even know how your business really did this year. Did you make money? Did you over spend in certain areas?

What good would a business be without its accounting systems? Without keeping track of its finances, a business can't go anywhere. No matter the size of the business, whether big or small, accounting is the heart of what determines a business' success. With it, you can find out just how much profit the business is making or losing. You can't overlook such an integral component of business as this one.

1) How much is your time worth?
Most business owners who do their own books contend that they want to maintain privacy of their financial matters. However, most of them spend far too much time focusing on keeping their books in order and therefore, forfeit time that could be spent on other tasks or with family, friends, or even relaxing.

2) Find yourself scrambling to get your books in order for tax season?
If your books aren't in order, you risk having your Tax preparer (who can cost as much as $150/hour) having to organize them prior to doing your taxes. By having them ready to go and properly prepared, you can save valuable time and money.

There is a huge difference between a bookkeeper that primarily does data entry bookkeeping and an accountant that not only is providing data entry service but is looking in greater depth at the financials and your business.

After making the decision to outsource, make sure to check the qualifications of the accountant and be sure to ask for current clients as references.