#businesstaxreturn

Raising a kid is one of the hardest things to do and one of the most expensive things. Regular expenses like diapers, baby food, and other necessary items to look after a child prove expensive. This can appear to be troublesome to a few parents who need to be made aware of the tax deductions and tax credits they can avail of if they have a child they are taking care of. These tax credits and deductions can allow parents to lower their tax bills while enhancing their tax returns. Provisions such as child tax credits that the IRS made can prove to be highly beneficial for parents. Parents need to be aware of them to save as much money as possible while filing taxes. Let us look at some ways parents can save money while filing taxes for 2022.

Exemption on dependents:

Before 2018, parents were eligible for dependent exemptions, which work similarly to deductions. However, after 2018, the dependent exemption was replaced by dependent credits. The adjusted child tax credit is an example of dependent credit, and the new W-4 form allows you to report additional withholding allowances. The dependent credits and extra deductions multiply as the number of dependent children increases for parents, allowing them to lower their tax bills and retain more of their paycheck as an increase in the number of children lowers the taxes withheld on paychecks by the IRS. Examples of the people you can count as dependent include, but are not limited to your own children, stepchildren, brothers, sisters, and parents.

Child tax credit:

The child tax credit often constitutes the most significant part of the tax savings for taxpayers with children, decreasing your tax bills dollar-by-dollar. If you qualified for the child tax credits, you were entitled to a tax credit of $2,000 per child before 2021. If your child is below 17 years of age, be it your biological child or adopted one, is a resident of the US, and has been living with you for more than half a year, you qualify for the child tax credit. The maximum child credit for children under six years of age has been set at $3,600. This implies that the $2,000 standard credit has been raised to $3,000 for kids that are up to 17 years of age.

Child, as well as dependent care credit:

You are entitled to this tax credit if you have a child aged below 13 years and have had childcare expenses while you had a job or were looking for one. A requisite for parents to receive this credit is that you and your spouse have to have some income during the year you file the taxes. An income limit governs the child and dependent credits to parents are entitled to it. The American Rescue Plan Act was enacted on 11th March 2021, implying that one could obtain a dependent care credit of up to $4,000 for a single dependent, and $8,000 for two or more dependents. Although it must be kept in mind that if your adjusted gross income turns out to be more than $438,000 you are not eligible for this credit.

EITC (Earned Income Tax Credit):

The IRS introduced this credit to assist parents with low wages, which vary based on the number of children they have and their income throughout the year. EITC can bring your tax bill to zero or even provide you with a tax refund in case your tax obligation is lowered to zero. For example, if you have a tax liability of $1,000 and you have a credit of $2,000, you are entitled to a $1,000 refund.

Adoption-related tax credits:

The costs of adopting a child can be curbed with the help of adoption tax credits, as it allows you to claim a specific tax credit for every child you adopt. The expenses that qualify to be considered for the adoption tax credit include the expenses related to court and attorneys and related meal and travel expenses. If the child being adopted has special needs, you can claim the maximum adoption tax credit allowed by the IRS. Thus, the adoption tax credit can help you deduct your tax bills even more. 

Tax credits for higher education:

There are two credits that parents can claim, depending on their child's age, including the AOTC (American Opportunity Tax Credit) and the LLC (Lifelong Learning Credit). The AOTC is valid for kids up to 4 years of age, while LLC lacks an age barrier. LLC allows you to claim higher education tax credits for as long as your child pursues higher education. You can only claim the tuition fees, enrollment fees, and cost of school materials through these tax credits. There is a specific income limit that users need to match to avail of such tax credits.

Deduction related to student loan interests:

Student loan interest tax credit allows you to deduct the payments you make towards student loan interests from your taxable income. You can deduct your taxable income by $2,500 at most and lower your tax bills for the year. Such expenses are referred to, as over-the-top expenses, and can be listed even if you are opting for standard deductions while filing your taxes.

Health insurance deduction for self-employed parents:

It is required for self-employed parents to pay for their health insurance and their families. However, one can deduct health insurance premiums for children under 27. The health insurance benefits that allow you to claim this deduction includes dental, long-term care, and medical premiums. You will not qualify for this deduction if your spouse is entitled to employer-sponsored insurance covering your children.

Independent contractors are working professionals that provide services or products under specified tenders, verbal agreements, and written contracts. The IRS does not intervene if you fail to avail of benefits under tax deductions; therefore, you must be informed about various tax deductions for your Business taxes as an independent contractor. Mentioned below are the top ten deductions for independent contractors:

The Home Office Deduction

You can deduct expenses for running your home office if you're an independent contractor. This includes a portion of your mortgage or rent, utilities, insurance, and repairs. To figure out the amount you can deduct, calculate the percentage of your home dedicated to your workspace. For example, if your home office is 200 square feet and your home is 2,000 square feet, you can deduct 10% of your mortgage or rent, utilities, insurance, and repairs.

Suppose you have a separate structure on your property that houses your office, like a detached garage or shed. In that case, you can deduct the entire amount of mortgage or rent, utilities, insurance, and repairs for that structure while filing your business taxes.

The Vehicle Expense Deduction

If you use your vehicle for work, you may be able to deduct the costs of operating and maintaining it. The deduction is claimed as an adjustment to income, so you don't have to itemize to take it. To qualify, you must use your vehicle primarily for business purposes. The IRS says that if you use your car for business and personal reasons, you can deduct only the portion of the expenses attributable to the business use while filing your business taxes. 

The Self-Employment Tax Deduction

You are responsible for paying your business taxes as an independent contractor.  However, you may be able to deduct the cost of your self-employment tax from your income taxes.To qualify for the deduction, you must have earned income from self-employment during the tax year. This includes payment from freelancing, consulting, or running your own business. The deduction is equal to the self-employment tax you paid during the year. If you're eligible for the deduction, you can claim it on Schedule C of your business tax return. 

The Health Insurance Deduction

For Independent contractors the cost of health insurance premiums can be deducted from income taxes. To deduct the cost of your health insurance premiums, you'll need to itemize your deductions on Schedule C of your tax return. Health insurance premiums are considered an "above-the-line" deduction, which means you can take the deduction even if you don't itemize your other deductions while filing your business tax online.

The Retirement Plan Deduction

The Retirement Plan Deduction is one of the top deductions for independent contractors. This deduction allows you to deduct your contributions to your retirement plan from your business taxes. The Retirement Plan Deduction is a great way to save for retirement and reduce your taxable income while filing your business tax online. 

The Education Expense Deduction

As an independent contractor, you can deduct the cost of education and professional development courses to maintain or improve your skills. The education expense deduction can be claimed for formal courses taken at an accredited institution and informal learning opportunities, such as online seminars or webinars. Those costs are also deductible if you are required to complete continuing education credits to maintain your professional license. To claim the deduction, you must itemize your expenses on Schedule C of your business tax return. Keep records of all paid invoices or receipts, as well as any course materials or other documentation that can verify the educational nature of the expense before you prepare to file your Business taxes. 

The Business Equipment Deduction

If you're an independent contractor, you can deduct the cost of business equipment from your taxes. This includes items like office furniture, computers, and software. The deduction is based on the cost of the equipment, so be sure to keep receipts and documentation handy while filing business taxes. 

The Travel Expense Deduction

If you are an independent contractor, the IRS allows you to deduct many of the expenses associated with your work while filing your business tax online. This includes travel expenses. When deducting travel expenses, you can either remove the actual costs of your travel or use the standard mileage rate. The standard mileage rate for 2018 is 54 cents per mile. To deduct your travel expenses, you must keep track of all your receipts and records. You will also need to keep a record of the reason for your travel and travel dates so that these match the assessment year of the business taxes. 

Coffee and Snack Deduction 

For the business taxes beginning from 2018, you are allowed to avail of tax benefits for food and beverages that you cater to while having office or client meetings. The taxation is set at a minimum of 50% and goes up to 100% if the expenses are declared publicly. You can also avail of this deduction if your employees need to take meals in the office for some reason. 

Child Care Deduction

This tax deduction can be an excellent relief for Independent contractors whose spouses work with them. Under this benefit, you can offer up to $5000 to your spouse for dependent care benefits, which can be later claimed during your business tax return. 

Conclusion 

From office expenses to travel costs, there are several ways you can offset your income and lower your tax bill. To avail of the benefits for tax deductions, you must keep detailed records of your transactions (receipts, invoices, statements, etc.) before filing your business taxes. Understanding the unique challenges that independent contractors face when it comes to taxes. NSKT Global helps you navigate this process by offering various tax services specifically designed for independent contractors, including:

 - Business Taxes planning and preparation 

- Self-employment tax assistance 

- Filing your annual Business tax return 

- Advice on tax-deductible expenses