A SINGLE FATHER'S TAX SITUATION
Ever since his wife's death, Eric Stanford has faced difficult personal and financial circumstances. His job provides him with a fairly good income but keeps him away from his daughters, ages 8 and 10, nearly 20 days a month. This requires him to use in-home child care services that consume a major portion of his income. Since the Stanford's live in a small apartment, this arrangement has been very inconvenient. Due to the costs of caring for his children, Eric has only a minimal amount withheld from his salary for federal income taxes. Thus more money is available during the year, but for the last few years he has had to make a payment in April- another financial burden. Although Eric has created an investment fund for his daughters' college education and for his retirement, he has not sought to select investments that offer tax benefits. Over- all, he needs to look at several aspects of his tax planning activities to find strategies that will best serve his current and future financial needs.
Eric has assembled the following information for the current tax year:
Earnings from wages, $71,604
Interest earned on savings, $50
IRA deduction, $3,000
Checking account interest, $45
Three exemptions at $3,950 each
Current standard deduction for filing status, $9100
Amount withheld for federal income tax, $4825
Tax credit for child care, $1200
Child tax credit, $1,000
Filing status: Head of Household
1. What are Eric's major financial concerns in his current situation?
2. In what ways might Eric improve his tax planning efforts?