Tax Savings Strategies – Top Overlooked Tax Credits and Breaks
Everyone could use a few more tax breaks, so here are some that can really pay off if you qualify.
Child and Dependent Care Credit – Do you pay for a babysitter or childcare while you're at work? Need someone to keep an eye on your sick spouse while you're away on a business trip? The Child and Dependent Care Credit can pay you back for at least part of these expenses. You can qualify if you paid someone to care for your child, your spouse or a dependent while you were working or looking for work. The person you paid cannot be a spouse, the parent of the person being cared for, or one of your dependents. The credit is worth up to 35 percent of the qualified costs for care, up to $3,000 for one child or dependent, or $6,000 for the care of more than one person.
Child Tax Credit – Not to be confused with the Child Care Credit, this credit is for taxpayers with a dependent child under age 17. It can be worth up to $1,000 for each qualifying child, in addition to the regular exemption for the dependent.
Earned Income Tax Credit (EITC) – Also called the EIC, this credit is aimed at low- and moderate-income taxpayers who hold down jobs or are self-employed. It's available to working families as well as single working taxpayers who qualify. The biggest qualifying element with this credit is that you have to be earning money somehow, whether from from wages or self-employment. Without earned income, there’s no EITC. The amount of the credit varies with the amount of income, the number of qualifying dependents and the age of the taxpayer.
Saver’s Credit – This credit gives you a bit more incentive to save for retirement. It gives taxpayers who are saving toward retirement a credit of up to $1,000 (twice that for married couples). It’s good for adjusted gross incomes up to the single limit of $30,750, or $61,500 if married filing jointly. You qualify by contributing to a qualified retirement plan such as a 401(k) or IRA.
Education Credits or Deduction – There are three different education tax breaks available. The American Opportunity Tax Credit is for expenses at a qualifying institution for the first four years of college. The Lifetime Learning Credit is aimed at those working toward a post-graduate degree, or a taxpayer who takes courses over a number of years. There's also a tuition and fees deduction for taxpayers who don’t qualify for either credit.
State Income Tax Deduction – If you live in a state that has state income or local income tax, you can deduct at least part of those taxes from your taxable income. Use our Taxes You Paid screen on your 1040.com return.
Job Search Deduction – If you're looking for a new job within your current career path, you may be able to deduct the costs of the job search from your taxable income. The deduction applies even if you aren’t successful in finding a new position. Expenses such as résumé preparation and printing, placement fees or travel to potential employers may qualify. Looking for a new job in a new field, however, is not covered. This one has to be grouped with certain other expenses, and only the amount over 2 percent of your adjusted gross income can be deducted.
Energy-Saving Tax Credits – Check out this credit if you've installed an energy producing systems in your home – solar, wind, or fuel cell. The credit is limited to 10 percent of the installed property costs, and is capped at $500 total lifetime credit. That means if you claimed $250 with this credit last year, $250 is all you can claim this year. You can also deduct energy-efficient improvements such as extra insulation, efficient doors and windows, and skylights.
Charitable Expenses – Most of us know we can deduct cash or property contributions to a qualified charity or non-profit organization, but you may not know that you might be able to deduct expenses from volunteering. For example, if you drive your vehicle as part of your volunteer work, you can deduct a mileage expense. If you buy supplies for the organization or its work, that could be deducted as well. Just about any expense you incur in the course of volunteering may qualify, as long as you are not reimbursed by the organization. You cannot deduct the worth of your volunteer labor or services.
Gambling Losses Deduction – You’re required to report all your gambling winnings on you income tax return, but you can deduct some of your losses from your taxable income to help offset any winnings. Deductible losses are limited to the amount of your winnings. So if you lost $2,000 to win $500 on the slot machines, for example, you’ll declare the $500 as income – and can claim $500 in losses as a deduction.