In my financial advisory practice, I’ve had the chance to work with many single parents and have witnessed the unique challenges and opportunities they can face. If you are a single parent, make sure you’re aware of the following points as you work to achieve financial goals for you and your family.
The first thing to consider as a single parent is your tax situation. If you have children in your house, you will want to make sure you claim head of household filing status. The head of household bracket allows more dollars to be taxed at lower rates and comes with a larger standard deduction than single filing status. You should work with a tax professional to understand these requirements in greater detail.
Questions also arise regarding tax credits. Make sure not to forget about tax credits when claiming head of household status. Many tax credits, such as the American Opportunity Tax Credit, which is used for college-aged children, can hinge on your ability to claim your children as dependents.
Specifically, these credits may offer more tax savings than the old personal exemption did, as they offer a dollar-for-dollar tax offset of tax liability. The new child tax credit, for children under age 17, is also very generous and provides up to $2000 of tax credit per qualifying child.
When it comes time for your child to enter college, don’t be lulled into a false sense of security that you’ll be eligible for more generous college financial assistance. I have worked with many hard-working single parents who are ineligible for any type of reduced tuition at the public universities in Kentucky.
Often, the income requirements to obtain financial assistance, even for a single parent, are very low. This can be disheartening for single parents who work hard to support their children and send them to college.
I recommend reaching out to the colleges and universities your children are interested in to learn more about the Free Application for Federal Student Aid (FAFSA) and other forms of financial aid the school may offer. This may or may not require cooperation with the other parent, depending on the specific institution.
Remember, being a single parent doesn’t mean you have to figure out your financial situation on your own. Consider working with a professional financial planner who can help you maximize all the financial tools available to you and your children.
Drew Watson, is a Certified Financial Planner and Private Wealth Advisor with Align Wealth Management, a private wealth advisory practice of Ameriprise Financial Services, Inc. He specializes in fee-based financial planning and asset management strategies and has been in practice for 23 years. You can contact him at firstname.lastname@example.org, or 270.684.8424