Tax Savings Strategies – Top Overlooked Tax Breaks

Tax Savings Strategies – Top Overlooked Tax Breaks

Give some extra thought to these tax credits, because they could pay off if you qualify. Child and Dependent Care Credit – This credit seeks to reimburse for at least part of the cost of care while you’re at work. 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 person. If you pay for care for more than one person, the total jumps to $6,000 for the tax year. 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. Working families as well as single working taxpayers qualify. The biggest qualifying element with this credit is earned income from wages or self-employment — without it, 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 has been a sleeper among tax credits. It gives taxpayers who are saving toward retirement a credit of...
Big Refund? Adjust Your Withholding

Big Refund? Adjust Your Withholding

We know it’s always nice to get that big tax refund check from the IRS. Party time, right? But what if we told you that you were missing out on even more money – simply by giving up that big refund year after year? It boils down to this: If you’re getting a sizable refund just about every year and you’re having federal taxes withheld on your paycheck, you’re probably having too much held out for federal taxes. So when you get a big refund, you’re just getting your money back. True, it’s sort of a mandatory savings account that pays off once a year, but you’re still losing money on the deal. That’s because the IRS gets to use your money for most of the year, without paying you any interest. Wouldn’t you like to get your money all year long, rather than waiting ’til tax time? What Do You Have To Gain? Give this a try: Add up this year’s tax refund and the one from last year. Divide by two to get the average refund amount. Then, divide that average by 12. That’s a ballpark figure for how much you could have extra in your pocket, every month. Now, here’s where that “making money” thing comes in. Instead of letting your employer send that amount to Uncle Sam, just set aside that amount into an account that earns you interest. True, these days, that won’t be a lot, but a little is better than none, which is what you get from the IRS. How to Change Your employer may ask you every December or January if...
Tax Breaks for Students and New Grads

Tax Breaks for Students and New Grads

If you’re a college student (or the parent of one), you should know about some key tax breaks that are available to you when you do your taxes. Let’s take a look. Tax Credits There are two tax credits for higher education. They’re targeted at different types of students, so it pays to know the differences. American Opportunity Credit This credit is for students who are earning their undergraduate degrees. The credit is specifically limited to those expenses incurred in the first four years of college. The credit is worth $2,500; the really good news is that $1,000 of that is refundable, meaning you could get that back as a refund even if you don’t owe any taxes. There’s an $80,000 income ceiling for single filers to qualify for the credit ($160,000 if you’re married filing jointly). If income is more than those amounts, the credit starts to decrease. The credit is available through the 2017 tax year. Lifetime Learning Credit Where the American Opportunity Credit is limited to the first four years of college, the Lifetime Learning Credit has a wider availability. This credit can be used for graduate school, undergraduate expenses, even  professional or vocational courses. Plus, there’s no limit to how many years you can claim it. This credit, however, is nonrefundable, which means it’s limited to your tax liability. For example, if you qualified for the full $2,000 Lifetime Learning Credit, but had a tax liability of $500 for the year, you’d get a credit for $500. Credits vs. deductions: What’s the difference? Tax breaks for higher education come in two basic forms: credits and...
Standard vs. Itemized Deductions

Standard vs. Itemized Deductions

One of the most complicated – or at least cluttered – aspects of the tax code is all the different kinds of deductions there are. Above-the-line, standard, itemized … what’s the difference, and which do you qualify for? We’ll look at these three different terms, but first, understand that all deductions work by cutting your taxable income. And lower taxable income means less in taxes for you. Deductions are intentional loopholes, written into the tax code to give you a break for certain financial and life circumstances. The three different types of deductions we’ve mentioned differ in where they appear on the tax return, and who qualifies to claim them. The first of these, and the most basic, are the so-called above-the-line deductions. They’re really stand-alone adjustments, and you may qualify for them whether you itemize or take the standard deduction (we’ll get to both of those in a bit). These deductions include: Education expenses – This includes tuition and fees paid by students, and some qualifying expenses for teachers. Moving expenses – if your move is for the purpose of taking advantage of a new job (and the move meets IRS distance requirements) you can qualify for this cool move. Student loan interest IRA contributions – If you have a qualified IRA, portions of the amount you contribute can be deducted from income. Up next, we come to a fork in the road: you either have to claim the standard deduction or itemize deductions. Naturally, you’d want to pick whichever saves you the most money, and that’s exactly what we do for you on your 1040.com return. The first option,...
Do I Need to File a Tax Return?

Do I Need to File a Tax Return?

You are required to file a federal income tax return if your income is above a certain level. That level varies quite a bit, depending on your filing status, your age and the kind of income you’re reporting. See the table below to see where your situation falls. Sometimes, File Anyway There are some cases where it’s advisable to e-file a tax return anyway, even if you aren’t required to. First, if you had federal income tax withheld from your pay, or if you made estimated tax payments, you should file in order to get any surplus withholding refunded back to you. Second, there are a few tax credits that can give you a refund even if you didn’t make enough income to file. These are called “refundable” credits, because they can give you a refund. Nonrefundable credits can only apply against taxes you owe. Earned Income Tax Credit – You could qualify for the EITC if you worked but didn’t earn a lot of money. Your credit amount will depend on income level, filing status and how many dependents you claim. Additional Child Tax Credit – This credit could be available if you have at least one qualifying child and you didn’t receive the full amount from the Child Tax Credit. American Opportunity Credit – The maximum credit for this education credit per student is $2,500 for the first four years of postsecondary education. Up to $1,000 of the credit can be refundable. With these credits, you have to file in order to qualify. Filing Rules for Seniors Are your Social Security benefits taxable? That depends on your...