BA107 Personal Finance- A Single Father’s Tax Situation Page 138

BA107 Personal Finance- A Single Father’s Tax Situation Page 138

1. What are Eric’s major concerns with his financial situation?

Eric has major concerns with regard to his tax situation. One is that he never has much money saved at the end of every year. This is partly due to him paying a huge amount of money for child care services when he is traveling for his job twenty days out of the year. Another issue is that he does not take enough taxes out each pay period in order to have more take home pay. Short run this would help him but long run, when tax time comes up, he has been ending up paying more than intended which puts him behind further.

2. In what ways can Eric improve his tax situation?

First Eric should definitely sit down and reevaluate his financial situation. What he is doing is not working. He should also calculate how much the childcare for his daughter costs; then his expenses and compare it to the money he is making at his current job. I have seen in some situations where the parent either found another job which required less travel and eliminated high cost for childcare. No sense in making more money when you are paying high costs in one area of your expenses. You would be still struggling. Also Eric needs to make arrangements with the IRS and also have more taken out of his pay at end of each pay period.

3. Is Eric typical of many people in our society? Yes

When I read about Eric’s situation, I thought about a situation I had gone through. I was traveling a ridiculous amount of time for my job and paying a lot of money toward childcare expenses for two kids. Not only that, I was driving an hour one way to my job. I was doing all of this as a single parent. It was around the time gas prices sky rocketed and also I was spending less and less time with my kids. When I was home I was too tired to do some things with my kids especially being the next day I had to do it all over again. What I was paying in those areas of expenses kept me struggling to make ends meet. I reevaluated my situation and saw that if I took a year off for school, while using my GI Bill, worked a part time job, and still received my other benefits, I would live comfortably. It work and also allowed me to spend more time with my kids.

4. What additional actions might Eric investigate with regard to taxes and financial planning?

As far as the tax situation, Eric seems like he’s getting himself deeper and deeper in debt. He needs to contact the IRS in hopes of renegotiating his current situation. It’s tough as a single parent and given his circumstances, his situation needs to be evaluated. This is very important because interest builds up on debt owed to the IRS and if you are not careful it can and will get ugly financial wise. Eric should also seek help in evaluating his personal finances. I have learned that sometimes being in the middle of your situation, you can’t get a clear picture. Eric needs to have someone evaluate his situation in hopes of offering a few solutions.

5. Calculate the following:

What is Eric’s taxable income?

a. Eric’s taxable income is $48, 340 minus $3,178. The answer is $45,162

b. What is his total tax liability? $1,670 plus 15%.

c. What is Eric’s tax withholding? $3178. Amount he would receive depends on how old his kids are. He makes over $45,000 which makes him ineligible for earned income credit for kids. More information is needed. Not sure about this one