Was your tax refund not quite what you were expecting this year? Now is the time to start preparing for next year. We have compiled the four areas that you should focus on to decrease your tax liability - education, family, finances and charity.
Education
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It has become easier and easier to continue your education after high school graduation. There are many alternatives to the traditional four year college or university. Finding a school to attend and gaining entry is the easy part. Paying for it is more complicated.
American Opportunity Tax Credit
The American Opportunity Tax Credit is a refundable tax credit for students within their first four years of post-secondary education. It is a credit for up to $2,500 for tuition, fees and course materials.
Lifetime Learning Credit
The Lifetime Learning Credit is a tax credit available if you, your spouse, or your dependents are enrolled in college classes at an eligible educational institution. It provides a tax credit of 20% of tuition expenses, with a maximum of $2,000 in tax credits.
Family
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Child & Dependent Care
The Child and Dependent Care Tax Credit (CDCTC) is a tax credit for families that pay expenses for the care of children, adult dependents or an incapacitated spouse. One can claim up to $3,000 in dependent care expenses for one child/dependent and $6,000 for two children/dependents per year. Eligible families with adjusted gross income (AGI) of $15,000 or less can claim 35 percent of these expenses for a maximum potential credit of $2,100. The percentage of expenses a family can claim steadily decreases as income rises, until families with AGI of $43,000 or more reach the minimum claim rate of 20 percent, qualifying for a maximum potential credit of $1,200.
Finances
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Savers Tax Credit
For low or medium income earners who are saving for retirement, the Savers Credit provides a credit based on the contribution made to a retirement account. This includes contributions to a traditional or Roth IRA; your 401(k), Simple IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan. The amount of the credit will depend on the adjusted gross income of the individual or household and the size of the contribution.
Earned Income Credit
The earned income credit is a refundable federal tax credit designed for lower-income workers. For 2016, the maximum earned income credit is $6,269. The amount of the tax credit varies based on a person's income and family size.
Charity
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Charity is very important to our communities and its positive impact on your income tax is simply a plus. Donations to a qualified charitable organization may provide you with a substantial credit on your income tax return. The term “charity” has become a confusing one over the past few years, so we shared tips on some online donations that are not considered donations. Itemize your deductions when claiming them as charitable contributions. When there are items that are received as part of the donation, only deduct the amount that exceeds fair market value for those goods. For example, if you “donate” $100 to play golf in a charity tournament and the green fees are normally $50, you can only deduct the $50. Keep receipts for contributions that are made in the form of cash, check or other monetary items.
Tax tips are like a marathon and the eSmart Tax team are here to guide you along every leg of the race. Be sure to stay updated on all things taxes by following us on Facebook and Twitter.