The super-sized spending years of raising little kids andpaying big mortgages can turn into a financial advantage come April.
Just look at all those opportunities to tap intomoney-saving breaks on your tax return. Even young couples who are juggling student loan payments can crack into some tax strategies that can work.
Of course, figuring out what tax deductions and credits actually apply to you has its own set of challenges.
Some of the most frequently asked tax questions center on being a parent, owning a home, getting married and the like, according to research by TurboTax Live, which connects taxpayers online to certified public accountants and enrolled agents to address questions.
Here’s a look at some popular tax questions and answers.
1. We got marriedshould we file jointly or separately?
Many times, filing jointly is the way to go. But not always.
Federal tax rates tend to be lower for couples who file jointly and you keep valuable tax deductions and credits that you wouldn’t be able to take if youfiledseparately,according to TurboTax Live experts.
Select “married filing separately,” for example, and you’d miss out on the student loan interest deduction worth up to $2,500 and other breaks, like the child care credit and the earned income credit, too.
But some married Millennials, oddly enough, are choosing to file separately simply because they want smaller student loan payments each month.
“It took a bit for me to wrap my brain around this approach,” saidGeorge W. Smith IV, a Southfield, Mich.-based CPA.He has several married clients who are working professionals with post-graduate student loan debt, including doctors and attorneys, who are filing separately.
“Their student loan income repayment plans are all determined, annually, based on their prior year adjusted gross income.”
More: Did a tax pro botch your return? Heres what to do
More: 10 taxes you pay that are determined by where you live
Filing taxes jointly with your spouse means that your combined income is used when calculating monthly student loan payments under anincome-driven repayment plan. But filing separately from your spouse can lead to a smaller income for the calculation.
Check the type of repayment plan you have. The Income-Based Repayment and the Pay-As-You-Earn Repayment plans allow for smaller monthly payments based on separate income if you file married filing separately. But the Revised Pay-As-You-Earn Repayment plan does not and would count both spouse’s income even if you file separately.
Smith said heruns the numbers through his tax software to see the tax ramifications of filing married jointly or separately. And some clients will choose the “married filing separately” status even if it triggers a higher tax bill.
“They do the math and determine that the increase in income taxes is less than the increase in mandated loan payments, if they file jointly,” Smith said.
“It’s all about current cash flow. They understand the increase in taxes due to higher tax brackets and the loss of key deductions, such as the student loan interest deduction.”
“Cash is king to them,” Smith said. “None of them is paying down more debt due to this technique.”
So it might be helpful for some to take time to consideryour filing status.
Columnist Jennifer Jolly tests apps and help sites for finishing your taxes. Jennifer Jolly, special for USA TODAY
2.I’ve got kids, so why don’t I qualify for a child tax credit?
Yes, you could have two toddlers or even a couple kids in high school running around the house. So what? Unless you meet therequirements for the child tax credit, you’re not getting a bigger tax refund for 2017 with this one.
All families don’t automatically qualify for the child tax credit, which amounts to up to $1,000 per child under age 17 on the 2017 tax returns.
You might not get the full credit or even a partial credit, for example,if your income is $110,000 or higher on a married filing jointly return. The threshold is $55,000 for a married individual filing separately and $75,000 for someone filing a single 2017 return.
For each $1,000 of income above the threshold, your available child tax credit is reduced by $50.
Remember, if your child turned age 17 in 2017, you’re no longer eligible for the credit. Your childhad to be age 16 or younger at the end of the tax year to claim the credit.
But here’s a weird tax tip: Your kids could be worth more money on next year’s tax return.
More Tompor: Con artists take their IRS scam to the tax preparers as data theft rises 60%
More: PMI tax deduction could mean bigger tax refund: Here’s what to know
The child tax credit doubles to $2,000 for each qualifying child in the 2018 tax year. And the income thresholds go up to $400,000 for married couples filing jointly and $200,000 for all other filers.
“The new credit applies on a much higher income level,” saidLeon LaBrecque, CEO of LJPR Financial Advisers in Troy, Mich.”A lot of people will get to use it who didn’t get a child credit before.”
He noted that some families who received the credit could save more in taxes on their 2018 tax returns. LaBrecque ran one example for a single parent making $80,000 with two children under age 17 who could save an extra$475 on her 2018 return.
Patricia A. Bojanic, tax partner for Gordon Advisorsin Troy, said the new tax law makes the 2018 child tax credit more beneficial and more widely available to many parents.
The new income thresholds representa dramatic increase from the previous thresholds, she said.
The number one thing people are doing with their tax refund. Elizabeth Keatinge has more. Buzz60
3.I bought my first house in 2017 what do I need to know about my taxes?
Welcome home to a bunch of new tax breaks.
The key to unlocking these tax breaks is to be able to itemize deductions. If you itemize, you can deduct the interest you paid for your mortgage, property taxes and points paid to secure your loan, according to TurboTax.
Make sure to take a second look at what you paid for state income taxes, as well as your receipts for charitable donations, too. If you’re itemizing deductions, instead of taking the standard deduction, you want to take advantage of other tax deductions, too.
4.What changes do I need to know about owning a home for the2018 return?
Mortgage interest remains deductible. The deduction for interest would apply to new mortgage loans of up to $750,000 (or for existing mortgages up to $1 million.)
But the new tax rules will doublethe standard deduction beginning in 2018, meaning that many more people will no longer itemize.
In addition, some homeowners in high-tax areas will not be able to deduct their entire property tax bills. Beginning in 2018, there’s a new $10,000 cap on deductions for acombined amount for personal property, real estate and state and local incometaxes. The limit also applies to sales tax for taxpayers who live in states with no income tax and have been able to deduct sales tax.
Pay attention if you took out a home equity loan. Interest on home equity loanswill no longer be deductible beginning in 2018, if the loan was used on things like paying for college tuition, taking a vacation or buying a new car. The loan would still be deductible if the money goes toward building, acquiring or substantially improving the home.
When you retire, you don't want to pinch pennies. These are the 10 least tax-friendly states for retirees, according to GOBankingRates. USA TODAY
5.What do I need to know about the student loan interest deduction?
You’re entitled to just one deduction of up to $2,500 instudent loan interest,regardless of whether you file as a single or jointly. (Remember, you’re not eligible for this deduction if married filing separately.)
So if two borrowers get married, their deduction will drop from up to $2,500 each on single returns to one combined $2,500 deduction on the joint return, warnedMark Kantrowitz, publisher of www.PrivateStudentLoans.guru.
If you qualify, you wouldbe able to claim this deductionas an above-the-line adjustment to income, so you don’t need to itemize your deductions. But the deduction is phased out and eliminated based on income.
For 2017, the amount of your student loan interest deduction is gradually reducedif your modified adjusted gross income is between $65,000 and $80,000 ($135,000 and $165,000 if you file a joint return).
You cant claim the deduction if your modified adjusted gross incomeis $80,000 or more ($165,000 or more if you file a joint return). The loan cannot befrom a related person or made under a qualified employer plan.
Cari Weston, director of taxation for the American Institute of CPAs, said she remembers taking the deduction as a single person years ago and then facing the reality after getting married that the maximum deduction was “per return, not per person.”
“Why don’t we both get this?” she recalls the couple asking then.
Contact Susan Tompor: firstname.lastname@example.org or 313-222-8876. Follow Susan on Twitter @Tompor.