If you’re part of the Generation X, you may realize you do not qualify for some of the credits and deductions you had been getting in prior years. Additionally, wage earners typically make the most money at work during this period of life. Without increasing your withholding from your paychecks to adjust for the changes, you could go from owing a little or getting a refund, to owing a lot at tax time. Many of the credits or deductions you were taking related to your kids are going away. Here are some of the deductions and credits you may lose:
1. Child Tax Credit — One of the biggest credits you can lose is the $1,000 credit per child (Child Tax Credit) the year your child turns age 17. Parents who have multiple children close in age are hit the hardest.
2. Credit for Day Care — Unless your child is disabled, you lose the credit the year your child turns age 13.
3. Itemizing Deductions — The interest portion of your mortgage payment will decrease every year to the extent that you might not be able to take advantage of itemizing deductions. Unless you have a year of high medical costs and you plan to give to charity, you might not have enough deductions to itemize. You usually need a minimum of $5,800 ($11,600 for joint filers; $8,500 for Head of Household filers) to benefit from itemized deductions.
On the other hand, here are some credits/deductions to look at for that might make up for lost credits or deductions:
1. Residential Energy Credits
2. Electric Car Credit — If you are considering going green when buying a car, you can get up to a $7,500 credit on a purchase of a qualified electric car. Electric vehicles like the Nissan Leaf, Chevy Volt, and Smart for Two currently qualify for the credit, and more vehicles may be on their way to this list.
3. Education Credits — If your kids are off to college and you are supporting them, you may be able to take an education credit on your return for the expenses paid.
4. 401(k) — Consider putting more into your 401(k) plan at work. The more you can put in your retirement plan, the more tax you will save when tax time comes around. If you don’t have a 401(k) plan at work, consider putting money into an IRA.
Consider Estate Planning
You should consider estate planning to financially protect your family due to unfortunate events such as injury, death, or you become mentally incapacitated. Estate planning consists of reviewing your assets and deciding on the best plan that would result in the lowest tax (or no tax at all) when passing your assets on to your loved ones. Consider options like living trusts, wills, power of attorney, etc. Get with a qualified retirement planner or attorney who can advise and set up a program for you.
Like this and want more tax advice? As part of a series of tax planning strategies, we’ve broken down tax advice for specific age groups: Generation Y and Millennials, GenX’ers, those at the “Top of the Hill,” Baby Boomers and the Silver Foxes at or nearing retirement.
Taxbrain’s simple questionnaire will determine what credits and deductions you may be eligible for, so you can get the maximum refund you deserve. Get your free account now, visit Taxbrain.com today.
Vincent Mangiapane, EA
Federal Analyst, Taxbrain