5 Tax Deductions & Credits That Can Save You Thousands of Dollars
Tax deductions and credits can save you thousands of dollars every year. Given the choice, who wants to pay more taxes than they have to.
Given the choice, who wants to pay more taxes than they have to. Don’t be the fool who does! It’s harder today than ever before to achieve the American Dream and every dollar you save helps to bring you one step closer. Even the IRS pushes US citizens towards making their tax claims wherever they can.
Unfortunately, the tax system in the United States is far from simple (Are you ready for your 2018 taxes?). It can be difficult to uncover where those nifty tax incentives are hiding.
Here’s five tax deductions and credits that people often overlook. Make sure that you double check your records against this list to ensure you’re not overpaying on your taxes!
1. Charitable Donations, Including Travel Expenses
Charitable contributions are deductible if you itemize your deductions. In addition, you can also deduct your travel-related expenses when you’re volunteering for a charity! For example, if you drive to do volunteer work every week, you can deduct either your actual expenses or use the standard deduction provided in the IRS publication.
Car expenses, bus, rail and air fares, lodging, meals and taxi fares related to charity are all deductible!
Don’t try to trick the system because you cant get a deduction if you mix volunteerism with vacations! Detailed lists and examples of volunteer travel and other expenses that can and cannot be deducted as charitable contributions are provided in the IRS publication.
2. Retirement Savings Contributions Credit
The Retirement Savings Contributions Credit is used encourage citizens to start saving money for their retirement. Credits give you a dollar-for-dollar reduction in how much you have to pay in taxes.
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If you meet the following criteria, you’re eligible for the Retirement Savings Contributions Credit: You’re older than age 18, you’re within income eligibility limits, you’re not a student (full-time) nor someone else’s dependent.
You can receive 10%, 20% or 50% credit off the first $2,000 you contribute to your retirement plan depending on your income bracket.
3. Earned Income Tax Credit
The Earned Income Tax Credit is often overlooked as those who are eligible for the EITC often aren’t required to file a tax return!
Definitely check to see if you’re eligible for the EITC. Check even if you normally don’t file a tax return because your wages are too low. The credit is refundable, meaning that you can still receive a refund check even if you don’t owe the federal government any money!
EITC is controversial, and there are many people who aren’t fans of it as it gives a refund to people who haven’t paid any taxes into the system.
4. Education Tax Incentives
Are you, your spouse or your child taking post-secondary classes? For college students and their families, the government offers three tax incentives: American Opportunity Tax Credit, Lifetime Learning Credit, Tuition and Fees Deduction.
The American Opportunity Tax Credit refunds up to 40% of the credit. This means you can get cash back even if you don’t owe taxes. $2,500 per year (up to four years) can be allocated to each eligible student.
The Lifetime Learning Credit gives you a dollar-for-dollar reduction on your taxes due. But unlike the American Opportunity Tax Credit, it isn’t refundable. If the credit is more than your tax liability, you don’t get any of the extra amount refunded to you. The Lifetime Learning Credit can be used on qualifying expenses incurred by you, your spouse or your eligible dependent.
Tuition and Fees deduction allows you to deduct $4,000 in expenses each year. Unlike the credits, this deduction cannot be applied toward expenses you pay for a dependent. You can only claim it for your and your spouse’s tuition and fees.
Each year you can only claim one of these incentives, so choose wisely.
5. Job Expenses
Do you have job expenses that exceed 2% of your income? Guess what, you can add them to your itemized tax deductions.
You can’t deduct the cost of your everyday lunch, but here’s a couple of things that you can deduct if your employer doesn’t reimburse you first: Uniforms, professional dues, protective gear. safety equipment, small tools.
In addition you can deduct the costs associated with job hunting. This applies even if you don’t land a new job!
If you need help with preparing your taxes check out the best online tax preparation services.
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