Tax season is in full swing and if you haven’t filed yet, now’s the time to get started. Whether you’re looking to reduce what you owe to the IRS or net a bigger refund, you’ll want to make the most of the tax benefits that are available. If you’re not claiming all the tax credits and deductions you qualify for, you could be leaving money on the table. When you’re preparing your return, it pays to take a second look to make sure you’re not missing out on any of these key tax breaks.
Generally, most taxpayers who itemize have the option of deducting state and local sales tax or income taxes they paid during the year. It may not seem like much but deducting these amounts can go a long way when it comes to your tax bill. If you live in a state that doesn’t have a sales tax, you should look into deducting sales tax. If your state does assess income tax, you can run the numbers to find out which deduction offers the biggest benefit. For instance, if you bought a big-ticket item such as a boat or car, deducting the sales tax may
yield a bigger return.
Chipping in money to an IRA is great for building your nest egg and it could also land you a big tax break. The Retirement Saver’s Credit is available for low and moderate income taxpayers who sock away money for their golden years. To be eligible for the credit, you have to meet specific income limits based on your filing status and you can’t be a full-time status. If you qualify, the credit is good for up to $1,000 if you file single or $2,000 for married couples filing jointly.
The Child and Dependent Care Credit is designed to help working parents offset some of the costs of their child’s daycare but the credit can also be applied to certain other qualifying expenses. This includes the cost of care you pay for an adult dependent who is physically or mentally incapable of caring for themselves and lives with you for more than half the year. The credit is capped at $3,000 for one qualifying individual or $6,000 for two or more dependents. Just keep in mind that if you’re paying someone to care for your dependent in your home, you may be considered a household employer, which entails some additional tax considerations.
If you were one of the millions of Americans who were on the hunt for a job in 2013, you could score a deduction for any expenses you incurred. You can only claim the deduction if you’re looking for a job in your present field, which means first-time job seekers or people who are changing careers won’t qualify. The deduction covers any fees you may have paid to an employment agency, the money you spent to prepare or mail out your resume and travel or transportation expenses you incurred while you were looking for a new job. For the 2013 tax year, the amount you can deduct is limited to the extent that your total expenses exceed 2% of your adjusted gross income.
The Earned Income Tax Credit is one of the most overlooked credits out there and the IRS estimates that anywhere from 20 to 25 percent of taxpayers who are eligible don’t claim it. To qualify for the credit, you have to have earned income for the year, be within certain adjusted gross income limits and have a qualifying child. If you don’t have a qualifying child, you can still get the credit if you’re between the ages of 25 and 64 and can’t be claimed as a dependent by someone else. The credit is refundable, which means you can claim it even if you don’t owe any taxes.
With tuition prices steadily climbing, you can’t afford to take advantage of the credits and deductions for education expenses. Some of the tax breaks that are available include the tuition and fees deduction, the American Opportunity Credit and the Lifetime Learning Credit. If you’re making student loan payments for yourself or your child, you can also claim a deduction for any interest you paid over the year. One thing you’ll need to remember is that you can’t claim multiple credits or deductions for the same expenses in the same year so you’ll need to figure out which one gives you the biggest tax benefit before you file.
When it comes to your taxes, you don’t want to leave any stone unturned. Going over your expenses with a fine-toothed comb may be time-consuming but it could add up to big tax savings in the long run.
This post was published on March 11, 2014