Tax preparation can be particularly stressful for busy parents. Here’s some professional advice to guide you through the reams of information on taxes.
If you’re an organized person, you’ve probably spent some time this month checking your files and getting ready to submit your tax return. Given today’s complex tax code, it’s hard to know if you’re really taking advantage of every rule that you can use to save as much as you can. But why should you miss out just because you don’t have a professional preparer or don’t have the time to sift through reams of advice on the Internet to find those tips that pertain to your financial situation?
Childcare and Education Deductions
Eva Rosenberg, MBA, EA, also known as Tax Mama (www.taxmama.com), offered timely advice about costs associated with your children. “Remember that . . . you can deduct education costs on the front of the tax return, even if you don’t itemize,” she said. Rosenburg adds that if you’re still paying for childcare, be sure to collect your provider’s name, address, and social security number or federal identification number. “It wouldn’t hurt if you also included his or her phone number on that same piece of paper. You never know when some tax agency wants that, too,” she says.
Patricia Smalls, of Personal Accounting Total Services in New York City suggests that careful planning for your child’s education will offer you a tax break down the line as well.
Coverdell Account ESAs
“For instance, a Coverdell Account ESA, which is a trust or custodial savings account created only for the purpose of paying qualified education expenses of the designated beneficiary, allows you to contribute up to $2,000 a year for your child’s education, tax free. Qualified educational expenses include tuition, fees, books, supplies, internet access and equipment, and the costs of room and board. Then distributions are tax free if they are not more than the child’s adjusted qualified education expenses for the year,” she says.
She also notes that the Coverdell can be used not only to pay for college, but elementary and high school as well.
If you have a medical spending account through your employer, you may never have realized that you also can use it to pay for drugs like Tylenol or Sudafed. According to Andrew S. Kenward, CPA, in White Plains, New York, the IRS has ruled that employer reimbursements of employee payments for over-the-counter medicines are tax free to the employee. “Therefore, employees can pay for these non-prescription drugs with pre-tax dollars through healthcare flexible spending accounts (FSAs),” Kenward explains. He also adds, “The IRS said that although individuals are not taxed on an FSA reimbursement of non-prescription drugs, if you don’t get reimbursed for them, you can’t deduct them yourself as medical expenses. This is because deductible medical expenses include only prescription drugs plus insulin.”
Tax Outlook Improved for Families
Robert Troyano, CPA, with Edwards and Troyano, LLC, in Saddle Brook, New Jersey, suggests that the tax picture has improved for parents in recent years.
“Parents with children in college are entitled to larger education credits [since 2003], as the Lifetime Learning Credit was increased to a maximum of $2,000 compared with $1,000 previously. In addition, parents with little ones can get a credit [that’s more than years past],” says Troyano.
“If you didn’t receive a child credit check back in July, you may still be eligible to receive the benefit when you file your return,” Troyano says.
Beyond just getting tax credits, Rosenberg adds that you want to make sure that you are not inadvertently paying too much, either.
“If you had more than one job, remember to see if you overpaid your disability withholding. You can get the extra money back from your state,” she says.
Unfortunately many Americans, looking to relieve some of their tax burden, fall victim to fraudulent and illegal advice. That’s why, especially if you are preparing your return yourself, you should take the time to check out the Internal Revenue Service’s Tax Scans/Alerts found on the IRS website (in the News section under Complience & Enforcement).
The IRS website also offers tips on accounting for medical expenses, tax benefits for military families, and estimating your taxes if you are self-employed.
Tax preparation can be stressful and frustrating, whether you employ a professional or do it yourself. And because each person’s tax situation is as unique as her fingerprint, it’s hard to offer advice in a one-size-fits-all package. But if you carefully review your returns from last year, think of how your situation has changed this year, and follow the advice of these pros, you’ll be at least a few steps down the path of avoiding tax-induced headaches.