Taking advantage of tax breaks in the U.S., such as seniors on a fixed income, working parents who pay for child care, and students with school loans, can help you keep more money in your checking account. Certain tax deductions are commonly overlooked, which can provide relief for many people. By taking these deductions, you might save a lot of money that would otherwise go to banks and the IRS in taxes. Here are six tax deductions that you may be able to take advantage of to save money:
1. Child care tax credit
If you pay someone to watch your child, like a nanny, nursery school or daycare, while you work (or go to school), you could be eligible for a tax credit. This credit, unlike the above one, is not refundable. This means that you cannot get a refund if you owe taxes at the end of the year. The credit is up to $3,000, and it is capped at $5,000 per dependent. It applies to care provided by anyone who supplies the services via a Care Provider’s certificate. Unlike other deductions where more money goes back to the person who pays for services, you are given money regardless of how much was paid.
2. Student loan interest
Federal student loans are treated as a tax deduction, which means that you will get to write off the interest you pay. If you deduct $500 in interest payments from your total income, then you will get to write it off towards taxes. So, if you paid $600 in student loan interest, then the IRS should give you a refund in about April when your taxes for the year are due. This also means that you can’t use loan interest to make lower monthly payments on your loan. The interest that you pay on your student loans is paid in full at disbursement. The IRS sees it as a tax deduction instead of a cost that needs to be repaid.
3. Medical expenses
If you are paying for medical bills out of pocket, you might qualify for a deduction. If you have high medical expenses that go over 7.5% of your adjusted gross income (AGI), you may be able to get a tax credit of up to 35%. There is a floor, which is 10% of AGI, and if your expenses are below that, there are no deductions. This credit can be upgraded if your income is low enough, but you will receive no benefit if it is over $70,000.
4. Charitable and political donations
If you make political donations, charitable contributions, or donate to an educational institution, you might be able to deduct these purchases from your taxes. Charitable contributions are tax-deductible, and if you donate property, this can be written off. If you donate property and it is valued at more than $500, then the charity can provide you with a document signed by an IRS official stating that the donation was made. This document proves that the donation went to a qualified organization and will relieve some of the stress of writing off donations.
5. Disability tax credit
The U.S government provides a tax credit for individuals with disabilities, and the amount of the credit depends on the individual’s income. The minimum is $360, but if you are currently receiving Social Security Disability benefits, you will be eligible for a minimum of $1,320. There is a maximum amount, which is 250% of your poverty level amount. This amount is the same if you are under 65 years of age, but if you are over that age, the rate goes up to $2,100. There is also a phase-out after you turn 65, which means that the amount of money available in this credit decreases.
6. Moving expenses
If you are moving to take a new job, you can take advantage of a tax break as long as your new job is at least 50 miles away from your old place of residence. This is also true if you are moving for reasons related to your job or business (such as required relocation). The deduction will depend on the distance, and the amount spent moving. For example, the IRS allows a maximum deduction of $2900 if you moved 321 – 521 miles away and $5750 if you moved over 500 miles away. However, if you are moving with a family member, the amount will be less as the IRS does not allow for a tax credit for moving expenses for a relative.
These are only some of the items you can deduct from your taxable income to achieve a lower taxable income. The deductions below are all based on your AGI, and they can help you change how your taxes are calculated and how much money you keep in your checking account.
