When it comes to our finances, I know all women consider themselves to be savvy. And because we are women, we are absolutely correct! We are savvy!. Women can take fifteen cents and turn it into a million bucks if we put our mind to it. I love being a woman! Do you know what I love more than being a woman? I love being a FINANCIALLY SAVVY woman.
It’s all well and good to stretch that paycheck, but what I want us to do, as women, is stretch those tax dollars. Once upon a time, I was that woman that took her tax refund and went shopping. My children and I were what was called hood rich. That was until I learned better. I learned how to stretch my tax dollars and maximize my refund. I learned how to build wealth. Now that is what you call savvy. In honor of Women’s History Month, and in keeping with this month’s theme, reader request tax series. I’m going to show you just how I used smart tax strategies to stretch my tax dollars.
Smart tax strategies will stand the test of time. As tax season bears down upon us, here are some reliable and long-term tax strategies that will help you obtain as many tax breaks as possible. It may be too late to use these strategies for this year’s taxes, but certainly, you can start applying them now to enjoy the benefits next year.
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Max Out Your Retirement Account Contributions
According to the US Department of Labor, 39% of female workers are covered by private pension plans, compared with 46% of male workers. When retirement time comes, 32% of female retirees get pension benefits, compared with 55% of men. Add to that the sad fact that a woman still earns only 79 cents for every dollar a man earns, and the conclusion is obvious. As with everything else, if we want it done right, we’re just going to have to handle this ourselves. How? Contribute, contribute, contribute!
Fortunately, the IRS has made it easier to build a successful retirement stash. Each year the deductible amount you can contribute to a retirement account is increased for inflation, and there are catch-up contributions for those 50 or over. Do the best you can to contribute the maximum deductible amount so that this money can grow tax-free until you reach retirement. The IRS can’t save for you — the rest is up to you.
Start Saving for College Costs
Women face a double whammy when saving for our children’s education. How can you pay for the $100 sneakers now and still set aside enough money to pay the staggering cost for college later? The fact of the matter is, unless you are as rich as Beyonce, you can’t.
Section 529 plans allow taxpayers to set aside money to grow tax-deferred, which can be taken out tax-free to pay educational expenses. This means that your money grows without taxation every year, and you don’t pay taxes when it comes out either. How’s that for being savvy?
Parents, grandparents, or anyone else who meets the applicable income restrictions may also contribute up to $2,000 per child per year to a Coverdell Education Savings Account (ESA). Children can also contribute to their own accounts. These accounts can be used to pay for private elementary and secondary school expenses as well as college expenses.
There’s hope — the Hope Credit, now renamed the American Opportunity Tax Credit. It amounts to 100% of the first $2,000 of a college student’s annual tuition and fees (no room and board costs) plus 25% of the next $2,000. So the maximum credit is $2,500 per qualifying student per year. The American Opportunity Tax Credit can be claimed for four years for any one student and it is allowed only when the student carries at least half of a full-time load for at least one academic period during the year.
The Lifetime Learning Credit is less restrictive. This credit is available for an unlimited number of years and without any requirement to carry a certain course load. You can also get credit for graduate courses and non-degree courses, such as professional training seminars and courses to update your computer skills. The credit is up to $2,000 per student for all qualified education expenses.
Eligible taxpayers can also deduct up to $4,000 in education expenses “above the line” (meaning you need not itemize to get the break), subject to income limitations. By the way, if you are considering going back to school yourself, keep in mind that your employer can reimburse your tuition up to $5,250 tax-free. Graduate school courses can be covered in addition to undergraduate courses.
Take All the Deductions You Can for Your Children
From diapers to piano lessons to all the extra food you need to stock for growing bodies, children are expensive! Fortunately, the government gives you a few financial tax breaks for being a parent. Make sure you take advantage of all of them! First, there’s the $1,000 tax credit for each qualifying child, in addition to each dependent’s personal exemption. Don’t forget to take this credit. It’s like receiving $1000 tax-free in your pocket, as long as your income doesn’t exceed the limitations.
Do you pay a babysitter or daycare center so you can work or go to school? The child and dependent care credit will cover up to $3,000 of qualifying expenses. If you have two or more qualifying dependents, you can claim the credit for up to $6,000 of expenses. For all but very low-income taxpayers, the new rules translate into a maximum $1,050 annual credit for one qualifying dependent or $2,100 for two or more dependents.
If you have your own business, employ your children at a fair-market wage and deduct your payments to them. That sure beats an allowance! Help them get started with their own savings by setting up IRAs for them for $5,500 per year or up to their earned income, whichever is less.
We women are savvy and resourceful. Using the tax strategies above can help next year’s April be a little bit sweeter than this year. Before I go, let me ask you one question. What will you do to stretch your tax dollars and make them work for you?
If you have found this article helpful, please share this with other savvy women. It can be your gift to them for Women’s History Month.