Travis Greaves was quoted in Reader’s Digest regarding the impact of big life changes on tax filings. Some big changes may include getting married, having a baby, or starting a side business.
With respect to having a new baby:
What about tax perks from reproduction? They vary depending on your income and are applied for each child you have. Greaves explains this is considered a dependency exemption. “For 2016, a taxpayer may claim $4,050 for each child, though there is phase out if your income exceeds a certain amount. Parents may also claim a $1,000 child tax credit for every year until the child turns 17. It’s worth noting that this is a credit, not a deduction, so it reduces your final tax bill by $1,000 per child. Like the dependency exemption, the credit phases out when a taxpayer’s adjusted gross income exceeds a certain amount. The phase out amount is lower than the amount for the dependency exemption,” he explains.
With respect to starting a new business:
[W]hen you create your company, you should do your research into what the financial responsibilities are for each. “For tax purposes, a business can either be a sole proprietorship, C corporation, S corporation, or partnership. Each of these comes with specific tax implications. New business owners should consider the multitude of tax incentives offered to them from deductions for business expenses to tax credits for hiring certain employees. If a business intends to hire employees, there are employment tax withholding procedures that the business should put in place.”
With respect to college tuition:
Greaves recommends that parents pay extra attention to tax incentives associated with college tuition and their related expenses. “The American Opportunity Tax Credit provides 100 percent tax credit for the first $2,000 spent on college, with an additional 25 percent credit on the next $2,000 (with a max of $2,500),” Greaves says. Typically it’s only applicable to undergraduate students.
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