What are the top 9 best tax-saving strategies?
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% 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 $2,000 for each qualifying child, in addition to the regular exemption for the dependent. Plus, there's a $500 credit for dependents who are 17 or older.
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 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). You qualify by contributing to a qualified retirement plan such as a 401(k) or IRA.
Education Credits – 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.
State and Local Taxes 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 up to $10,000. Alternatively, you can deduct state and local sales taxes.
Energy-Saving Tax Credit – Check out this credit if you've installed an energy producing systems in your home – solar, wind, or fuel cell. The credit is equal to a percent of the total cost of qualified property depending on the year it was placed in service:
- If placed in service in 2017, 2018, or 2019, the credit is capped at 30% of the cost of qualified property.
- If placed in service in 2020, the credit is capped at 26% of the cost of qualified property.
In 2018, 2019 and 2020, the residential energy property credit is limited to an overall lifetime credit limit of $500 ($200 lifetime limit for windows).
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.
Also, for tax year 2020, you could qualify for a $300 above-the-line deduction for cash donations to a qualifying charity.
Gambling Losses Deduction – You’re required to report all your gambling winnings on your tax return, but you can deduct some of your losses from your taxable income to help offset 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.