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 large portion of his income. Since the Stanfords 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. This makes more money available during the year, but for the last few years he has had to make large payments 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. Overall, 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 $48,340
Interest earned on savings $125
IRA deduction $2,800
Checking account interest $65
Three exemptions $3,650 each
Current standard deduction for
filing status $8,000
Amount withheld for federal
income tax $3,178
Tax credit for child care $400
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?
3. Is Eric typical of many people in our society with regard to tax planning? Why or why not?
4. What additional actions might Eric investigate with regard to taxes and personal financial planning?