Last week we saw how claiming either child care or medical expenses may be more advantageous for different families. Now I will give you some simpler guidelines to use for your situation:
- The first and foremost tip is to use tax software such as TurboTax or Ufile. Use the software purchased for the previous tax year to examine scenarios for your family. This will allow you to decide if you want to claim child care or medical expenses for this year.
- Change the variables in the software to look at the tax savings available to you. One change can so dramatically change the outcome that you can’t reliably use a simple calculator for the problem.
- When you file your tax using tax software, complete all your entries and just prior to filing, switch the medical expenses from one partner to another to see which is the most advantageous.
- Remember to examine the total tax owing as a family instead of focusing on one return.
- If the difference between the two is minimal, you may wish to simplify your filing by claiming only one category.
- If your total tax owing for the year will be below zero, you may wish to consider the refundable medical tax credit. Your tax software will calculate this automatically.
- If you are in a higher income tax bracket, it is a no brainer to claim child care expenses. Not only is your marginal tax rate higher, but you may also increase the “Family Tax Cut” savings.
- Have a good look at your non-refundable tax credits on your tax schedule. If they are higher than your tax owing, they are going to waste as you can’t reduce your tax to less than zero using non-refundable credits.
If this is all too hard, don’t beat yourself up. If you claim either expense, you are saving tax. This is something a lot of people aren’t doing and you should give yourself some credit. Well done and keep up the good work.