Last week, the IRS debunked some myths on 1099-K reporting.
Remember, the IRS is planning to phase into the $600 reporting threshold for PayPal, Venmo, et al. Here’s how that breaks down (as of this writing):
– Nothing will change for 2023. The threshold is still 20K in payments for over 200 transactions.
– Next year (2024 taxes), the threshold will lower to 5K in payments.
– The implementation date for the $600 reporting threshold is still undetermined by the IRS.
Keep in mind: Just because you don’t get a 1099-K in the mail from CashApp for receiving payments from Central PA buyers for your used car part collection, it doesn’t mean you don’t have to report that income. You do. All income is taxable.
So, have you been collecting payments for goods or services via third party platforms? If so, let’s make sure that’s recorded on your tax filing this year. There is little over a month left in the tax filing season. Time to knock that out:
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Life changes, like starting a side gig, will change your tax obligations, and you need to be prepared for that. Sometimes it means paying more taxes (oh joy). But sometimes a life event can qualify you to take advantage of certain deductions and tax credits (OH JOY).
Take, for example, going through a divorce. There are big changes to your taxes in this event, especially if you have children. Let me break that down for you.
Nailed It Business Services’s Top Tax Credits for a Newly Single Parent List
“Communication is the cornerstone of any successful relationship.” – Stephen Covey
I had a long-time Central PA client awhile back who went through a divorce with shared custody of her two children. She and her ex disagreed on who should claim the children on their taxes.
After we chatted about her situation and the available tax credits for a single parent, she revisited the conversation with her ex-husband, and they decided to alternate claiming the children year-to-year. This made things fair for both parties and allowed them both to benefit from the tax advantages.
Now not all couples in the process of divorce (or post-divorce) have this kind of “easy” rapport. However, the example highlights two important things.
1. How your taxes will change with claiming dependents
2. The tax credits for a single parent you can and should take advantage of
Let’s break down the key issues.
Who gets the “tax break” on the kids?
Unlike sharing custody time, only one parent can claim a child as a dependent on their tax return. Usually this is the custodial parent (aka the one your child lives with for more than half the year). However, the tax credits for a single parent get trickier with 50/50 split custody agreements. Here, the tiebreaker goes to the parent with the higher adjusted gross income (AGI).
But that doesn’t mean the other parent doesn’t have an option. There is a sort of secret weapon to employ in this situation: Form 8332. This allows the non-custodial parent, under specific agreements, to claim the child on their taxes and potentially benefit if they contribute significant financial support. You’ll want to talk to a family lawyer about this option to see if it makes sense for your situation (and a reliable Pennsylvania tax pro you can trust — we’re here for you).
Tax credits for a newly single parent
When you were married, there were tax benefits when it came to your children. When the marriage relationship ends, though, there are still some benefits that apply that could help in reducing your tax burden.
Child Tax Credit (CTC): While the CTC will most likely see changes once the government has made decisions on the new tax laws, there is still a valuable financial boost available in claiming this credit. As of this writing, for tax year 2024, you can claim up to 2K per qualifying child under the age of 17, with up to 1.6K of it being refundable.
Earned Income Tax Credit (EITC): Eligibility for the EITC can change for both custodial and non-custodial parents after divorce. Don’t miss out on these benefits due to a lack of awareness. In 2024, for example, the maximum EITC for a single filer with one qualifying child is $6,604 and for two or more qualifying children, it’s $7,430.
Head of household filing status: This can offer significant tax benefits, with a higher standard deduction than the “Single” filing status, for the custodial parent with a qualifying child. However, it might affect the non-custodial parent’s standard deduction.
Medical expenses and dependent status: Even if you don’t claim your child as a dependent, you can still deduct up to half of their unreimbursed medical expenses if you contribute more than half to their overall support and the other parent doesn’t claim the deduction themselves. There are other limitations on this, of course.
Also… while understanding tax implications is important for the here and now, it’s crucial for you to consider long-term financial planning when it comes to your children as well. This may include creating college savings accounts, discussing future educational expenses, and ensuring both of you contribute appropriately to the child’s well-being even after the divorce. It also helps to consult a local Central PA financial advisor who specializes in post-divorce situations.
Going through a divorce is challenging, and navigating the tax implications with kids involved can add another layer of stress.
I’m here to help you understand and manage your tax situation after divorce and take advantage of the tax credits for a single parent. Reach out if you have questions or need guidance on claiming your children, maximizing your tax benefits, or avoiding potential complications.
We’re here for you in your new normal,
Tina Nail
