Tax season may not be your favorite part of the year, but it could be more rewarding if you know the right strategies. You may be losing money without realizing it in deductions and unclaimed tax credits. Consider the following questions to potentially lower your bill with Uncle Sam or even to receive a refund.
Did you pay for a caregiver?
Whether it is for a babysitter for your newborn or for care in the home for another family member, if you paid for the care of your dependent child under the age of 13 or another qualifying person, you could claim a tax credit from the child.
The tax credit can be up to 35% for as much as $3,000 for a child or dependent or $6,000 for two or more. Depending on how much you paid for qualifying expenses while working or looking for a job, as well as the amount of your adjusted gross income, you could receive a tax credit of $1,050 for one dependent or $2,100 for two or more.
You may be able to claim the dependent care credit even if you contribute dollars before taxes to a flexible dependent care account (DCFSA) provided by the employer. However, keep in mind that you may not get full dependent care credit if you contribute to a DCFSA.
Did you sell stocks or mutual funds of shares?
If you sold stocks or mutual funds, Note footnote 1 of a taxable account. Do not forget to include the number of reinvested dividends used to acquire shares; otherwise, it may pay more erroneously for capital gains taxes on shares bought with reinvested dividends. The best way to make sure you are correctly calculating your capital gains tax is to keep all your investment statements, which show how many stocks you bought with reinvested dividends throughout the life of your account.
Did anyone in your family attend college or graduate school?
If you, your spouse, or your dependent child were in college for at least half of the year, you could get the American Opportunity Tax Credit for up to $2,500 per student. The credit is for tuition and certain related expenses in educational institutions that qualify and can be claimed annually for each student’s first four years of study. You can get the full credit if your modified adjusted gross income is $80,000 or less ($160,000 for married couples who file a joint return). The credit is eliminated for modified adjusted gross income above $90,000 ($180,000 for married couples filing a joint return).
Instead, you can claim perpetual life-long learning credit of up to $2,000 per tax return for college or graduate enrollment and certain related expenses, subject to certain income limitations. You cannot claim both credits for the same student’s expenses on a tax return. Document your expenses and keep tuition bills and receipts for school-related books and materials in a safe place, as they may be necessary at the time of taxes. For more information on these and other tax benefits related to education, see the Internal Revenue Service (IRS) general description on the compensation of education costs.
Did you make donations to a charity?
Did you give money or donate goods to organizations or causes that are important to you on Giving Tuesday or any other day of the year? If so, you can obtain tax benefits from your donation. Keep all those receipts and check your checkbook and credit card bills to refresh your memory about the donations you have made. You can get more information about the rules for charitable contributions on the IRS website.
Are you a member of the National Guard or military reservist who traveled for work reasons?
The federal tax code allows deductions for some travel expenses related to military service, including mileage, hotel, parking, tolls, and some food costs. If you are an Armed Forces Reservist and travel overnight more than 100 miles from your home for your service, you may qualify to deduct unreimbursed travel expenses. You do not need to itemize deductions, and these deductions are not subject to the adjusted gross income limits. The IRS has more information about this and other tax benefits available to reservists.
Did you make your home more energy-efficient, or did you buy an electric vehicle?
With respect to the environment: you may be able to claim a tax credit of up to 30% of the cost and installation of certain renewable energy systems. This credit is available for qualified properties, including certain solar properties, put into service before the end of 2021.
If you purchased a qualifying electric vehicle before 2018, you could claim a tax credit of $2,500 to $7,500.
Did you make mortgage interest payments or points?
You may deduct the interest you pay on your original or refinanced mortgage for your primary home and other property that is considered a qualifying residence, up to certain limits. If you paid mortgage points (prepaid interests that help you get a lower rate) on your mortgage, you could also deduct them. Visit the IRS website for a list of the criteria you must meet to deduct mortgage points.
Did you contribute to a retirement account on a tight budget?
Saving for retirement when you do not earn much can also save you money at the time of taxes. If your adjusted gross income is less than $31,500 ($63,000 for married couples filing jointly), you may qualify for the retirement savings contribution credit, also known as the saver’s credit. Qualifying individuals can get a tax credit of up to 50% of their retirement plan contributions of up to $2,000 ($4,000 for married couples who file a joint return, depending on their adjusted gross income). The IRS offers more details about eligible people and retirement plans that qualify for the credit.
Maybe filing your tax return is the last thing you want to do in your free time, but it can pay off. Consider deductions and credits that are usually overlooked to minimize your tax bill and save more cash in your pocket.
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