Jennifer Perez

B01250575
6/12/2019

A Single Father’s Tax Situation

1. Eric’s major financial concern in his current situation is that he will not have the money
needed to care for his children now that his wife has passed. More specifically, with his
wife being gone he has lost a financial contributor and not only that, but he now needs to
pay someone to take care of his kids while he is at work. Because of the high cost of
childcare, another problem has arisen for Eric; only a minimal amount of money was
withheld from Eric for federal income taxes meaning that he will owe money to the
federal government during tax season, and with his already financially strained life he
does not know how he can afford it.

2. There are several ways that Eric can improve his tax planning efforts. The first is that he,
if his wife died less than two years ago, can file as a qualifying widow(er) with a
dependent child. This way he can use the joint tax rates to help ease his finances. Filing
as qualifying widow(er) with a dependent child is only helpful however if Eric’s itemized
deductions are less than his standard deduction. With the standard deduction for filing
as head of household given Eric is filing taxes in 2014, his standard deduction for head
of household would be $9,100 and his standard deduction for filing as a widow(er) would
be $12,400. Changing his filing status could save him $3,300 in taxable income, if his
itemized deductions are less than the standard. Knowing that Eric lives in a small
apartment that already excludes the interest expense and the real estate taxes itemized
deduction. Also considering that Eric is struggling financially, he also most likely not
qualify for the charitable gifts deduction either. The only itemized deductions that Eric
could use in his taxes, depending on where he lives, is the state and local taxes
deduction and the IRA deduction, which is $3,000. The itemized deduction for state and
local taxes would have to be more than $9,400 if filing as a widow(er) and $6,100 if filing
as head of household for him to want to choose itemized deductions. Since Eric can only
feasibly file for two itemized deductions it is safe to say that he will save more money in
taxes if he files as a qualifying widow(er) with a dependent child, but even if his wife did
die more than 2 years ago he would still benefit with choosing the standard deduction
when filing as head of household.

Eric’s income is &71,604 and with the standard deduction for filing as a widow(er) his
taxable income so far would be $59,204, but there are still ways to save on his taxes.
Eric has three children and, therefore, gets a tax exemption for each of them whether or
not he chooses the standard or itemized deductions. Each child gets a $3,950
exemption and with three kids that adds up to $11,850, therefore making Eric’s taxable
income $47,354. The amount of taxes owed on $47,354 in 2014 would be $7,694.35, the
federal government withheld $4,825 making the amount Eric owes to be $2,869.35. Eric
could still lower the amount of taxes he owes, however, by claiming tax credits for child
care at $1,200 and the child tax credit at $1,000. These tax credits subtract the amount
of the credit from Eric’s taxes which would reduce the amount he owes to $669.35, but
there is one more tax credit he can get. Eric already puts money away for his children to
be able to go to college, therefore, he could put that money in a Coverdell Savings
Account and then claim that as a tax credit, he already puts money into his kids future so
it would not hurt him financially to simply change the accounts. He could realistically owe
no money to the IRS with this tax credit, depending on how much money he put into the
account over the year. Lastly, Eric could claim less people on his W4. It is unknown how
many people that Eric claims, but chances are that if he is owing money to the IRS for
having minimal taxes withheld then it is probably due to claiming too many people. It
may have seemed helpful to claim more people than necessary so that he could keep
more of his paycheck, but claiming too many people has hurt Eric in the long run, and if
he just claimed less people then he would most definitely get a refund, especially if he
followed all of the steps stated above.