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 up to $1,000 (twice that for married couples). It’s good for incomes up to the single limit of $30,000, or $60,000 if married filing jointly. You qualify by contributing to a qualified retirement plan such as a 401(k) or IRA.

Education Credits or Deduction You actually have three choices when it comes to getting some of your higher education expense back from Uncle Sam. The American Opportunity Tax Credit is for expense 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 strings out courses over a number of years, whether for work-related reasons or the sheer joy of learning. There’s also a tuition and fees deduction for taxpayers who don’t qualify for either of the two credits.

State Income Tax Deduction If you live in a state that has state income tax – or local income tax – you can get at least a portion of those levies deducted from your taxable income. Use our Taxes You Paid screen on your return to report your state and local income taxes. These amounts flow to Schedule A.

Job Search Deduction If you were looking for a new job within your current career path, the expenses you incurred can be deducted from your taxable income. The deduction applies even if you weren’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.

Energy-Saving Tax Credits Even though a portion of these credits were phased out in 2013, some taxpayers will still be able to take advantage of the alternative energy credit from the original package. Simply put, Part I of the package is for energy producing systems – solar, wind, or fuel cell – installed in your home. 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. Part II of the form is for rolling over a credit from past years and for reporting post-construction improvements such as extra insulation, efficient doors and windows, and skylights.

Charitable Expenses Most of us know we can deduct our contributions of cash or property to a qualified charity or non-profit organization. But if we do any volunteer work for those qualified organizations, we may also be able to deduct the expenses we may incur in the course of volunteering. If you drive your vehicle as part of your volunteer work, your gas and other expenses could be deducted, for example. If you buy supplies for the organization or its work, that expense could be deducted as well. Just about any expense you incur in the course of volunteering may qualify (within reason, of course), as long as you are not reimbursed by the organization.

Gambling Losses Deduction – It should be no surprise that you’re required to report all your gambling winnings on you income tax return. But it may not be quite so widely known that you can deduct some of your losses from your taxable income as well. Granted, there are limits. Your losses that are deductible 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 be entitled to claim $500 in losses as a deduction. The rest of your losses are yours to remember.

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