Tax Tips for 40-Somethings

Turning 40 (or “39 again”) can feel like a big milestone for many. But just like your 20s and 30s, your 40s bring a wealth of learning opportunities as you raise a family, grow your career, and settle in to yourself. And as always, new growth opportunities mean new expenses and new questions come tax season. As we continue our “taxes through the ages” series, here are a few tax tips for folks in their 40s. 

Tax Exemptions for Families with Kids

Between soccer practice, dance lessons, trips to the movies, and – hopefully – an annual beach trip, life with kids can get expensive. But fortunately for our friends with kids, there are a number of tax exemptions for which you and your dependents may qualify. (An exemption is an amount of money you can subtract from your Adjusted Gross Income for having dependents.) 

In 2015, the IRS allowed a $4,000 exemption for each dependent – including children, stepchildren, foster children, sibling or step-siblings, or any of their descendants in your care (grandchildren, nieces and nephews, etc.). To qualify, the dependent must have lived with you for at least a year and a half and must be under 19 at the end of the year, or under 24 if a full-time student. In split-custody cases, you may be able to claim your dependent every other year depending on your custody arrangement. And in cases where a dependent receives income, you may still be able to claim them as a dependent so long as they do not provide more than one half of their own support. 

As an added bonus, you and your spouse are each entitled to a $4,000* personal exemption as well!  

Exemptions for Adult Relatives

Many households contain members of various generations – be they adult children, grandparents, aunts or uncles, the more the merrier. In this situation, you may be able to claim a dependent who is not a qualifying child, so long as they meet every one of the following criteria.

• The person is either a relative or a full-time member of your household. 
• He or she is a resident of the United States, Canada, or Mexico. 
• He or she did not file a joint income tax return with anyone else. 
• You provide over half of his or her annual support. 
• This person has less than $4,000* annual gross income. 

Medical Expenses

When medical issues arise, the last thing you want to worry about is taxes. Thankfully, there are a number of deductions you can claim. You may deduct any expense you pay for the prevention, diagnosis, or medical treatment of physical or mental illness, and any expenses to treat or modify any part or function of the body for health—but not for cosmetic purposes. (LASIK or gall bladder surgery – yes, BOTOX or nose job – no.) 

But keep in mind that medical expenses are only available if you itemize, and only if they exceed 10% of your Adjusted Gross Income; you can only deduct the medical and dental expenses that exceed those percentages.   

Tax Breaks for Parents of College Students

Sending your kids to college for the first time can tug at your heart strings (and your wallet), but it can also mean good news come tax season. There are two generous tax breaks available to help you save on those college costs. 

• The American Opportunity Tax Credit: You can claim a credit of up to $2,500 if your child or dependent is in his or her first four years of college and your income doesn’t exceed $160,000 if you are married and filing jointly, or $80,000 for an individual tax payer. (Above these income levels, the credit is phased out, but you may still be entitled to a break depending on how much you earn.) 
• The Lifetime Learning Credit: This credit is available for an unlimited number of years for just about any degree or non-degree course, and can earn you up to $2,000 – based on 20% of up to $10,000 of qualifying higher education expenses. But there’s a catch: You can only claim one Lifetime Learning Credit per year, no matter how many qualifying students you have in your household. 

*Figures are for 2015. 

No matter how many tax returns you’ve filed in the past, it can still feel overwhelming at times. That’s where we come in. Be sure to browse our services page and fill out the form for a free consultation. Or give us a call at 844-841-9857!