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Tax Credit Tips

Five Tips for Getting the Tax Relief You Need

See all tax credits that you are eligible for.The April 15th deadline for filing your taxes doesn’t have to be an aggravating day nor a massive hit on your bank account. Minimize the damage on your wallet by following these five tips to lower your tax burden with tax credits:

Tip #1 – Know Your Filing Status and Plan Accordingly

The first step to getting a tax credit and reducing your burden on tax payments is to determine your filing status. Filing the right status is no small matter since it determines which tax credits you’re eligible to receive and it can help prevent filing the wrong status, which can cost you in fines.

If you need help determining your filing status, you can take a survey on the IRS website to learn which of the five statuses best applies to you.

Tip #2 – There Are Credits For Students

If you’re taking four years of post-secondary education, you may be eligible for the American Opportunity Tax Credit, which can save you up to $2,500 on your educational expenses for the year. The American Opportunity Tax Credit is available for any taxpayer whose adjusted gross income is under $80,000 and for a married couple filing jointly with income under $160,000.

To claim the educational tax credit, fill out Form 8863. There may be other tax credits available to you and you can talk to a professional tax preparer to find your best option.

Tip # 3 – Get Credits for Saving Towards Retirement

If you are nestling your cash away for retirement (which hopefully you are), you could be eligible for the Retirement Savings Contribution Credit — now known as the Saver’s Credit.

To claim this credit, you must be over 18 years old, out of school or going to school part-time, you must be contributing to a retirement plan (like a 401(k) or an IRA) and meet the income requirements. A taxpayer’s adjusted gross income for this credit cannot exceed $57,500 if you’re married and filing jointly, $43,125 if you’re the head of household and $28,750 if you’re single, a qualifying widow/widower or married and filing jointly. If you qualify, be sure to fill out Form 8880.

Tip #4 – Make Use of Deductions For Your Donations

If you donated time and or money to a charity, you’re eligible to receive tax deductions for it. While you are not technically receiving a tax credit, you can still use these deductions to reduce your overall tax burden. Keep in mind however that you must be contributing to a qualified organization — usually called a 501(c)(3), and you need to be able to prove that you made a contribution.

If you’re not sure about an organization’s status, ask them and don’t forget to get confirmation of your time or amount donated.

Tip #5 – Look into the Earned Income Tax Credit 

Finally, there’s the Earned Income Tax Credit (EITC). This credit is one of the more substantial credits available for earning less than $50,270. If you’re not sure if you qualify for the EITC, simply use the IRS’s EITC Assistant to find out. Do note that recipients of the EITC cannot be a claimed as a dependent on another filer’s return.

By Neda Jafarzadeh, a financial analyst with NerdWallet Investing, which helps investors compare total costs to find the best broker for their needs.

Tax credit image courtesy of Shutterstock.

Comments

  1. Stephanie Vega says:

    Thank you so much for this advice. I literally worry myself sick each year trying to squeeze the most out of my taxes. This should be required reading!

  2. I like tip #4 – every year I make it a point to do several donations to Goodwill and a local woman’s shelter. They come pick items up so it’s very easy, and I get the receipt for my taxes.

  3. I think tip 3 is the most important that everyone should look at. If you don’t think about your future now then it’s going to be too late. The fact that the gov are willing to aid us in planning for our retirement is something I won’t dismiss in a hurry.

  4. Sue Monroe says:

    I found your post a good read and the tips sound. However, I stress over filing my taxes so much each year that my blood pressure goes up, literally, and I lose sleep. Because it is so stressful I leave most everything up to an accountant, as do many people. However, I still educate myself too, as should everyone, because an accountant isn’t a mind reader. He or she can only ask you questions and process your expenses and other deductions you put forward. If you don’t know of your own deductible expenses, such as a cash donation to a charity that you mislaid the receipt for, a few weeks or months you acted as a care-giver for a relative, a tax deductible donation of goods to a relief effort, etc. and the accountant fails to ask you lose out. So I educated myself but leave the stress of organizing everything and filing to the professionals.

  5. Number 3 is the one tip I try to bide by every year. Some years are tougher than others to maintain the same level of savings but every little bit helps in the long run.

  6. Carter H. says:

    #3 is a recent thing for me. I got a Roth IRA last year so I got to deal with that in my taxes for the first time. Which reminds me, I need to add more to it real soon!

  7. Carla S. says:

    Most years we don’t really worry, but this year we added a rental income, freelance income, plus my husband filled out the wrong number of exemptions on his W2. To top it off, my husband’s old employer cashed out his 401K at the end of December as it was below their new “minimum”. Unfortunately we didn’t know until the end of January when we received the paper and check forwarded to our new address. So we were in a sticky situation. Those deductions that we had kept receipts for all year were a god send. It pays to go to a professional as they knew about more than we could write off. Also, like you stated, knowing your status is very important to make sure that you don’t owe or have penalties.

  8. Owing the government money is the worst feeling ever. I didn’t know that saving for retirement could be counted. However, I did hear there is a website to figure out what your donations are worth. Does anyone know where to find it?

    • Hi Connie,
      I assume that you are referring to placing a value on in kind contributions, such as clothing, furniture, etc. There are a lot of sites that sell software for this and others have worksheets. Here’s a link to a site that allows you to download a worksheet. I haven’t checked it out myself yet as I bought a software package a couple of years ago to use in my tax practice.
      http://www.maryscenter.org/content/kind-donation-guidelines

  9. I wish I had seen this post sooner! I completed my taxes, but it was arduous and really stressful. On top of it all, I ended up owing the Fed money. I’m pretty sure that I took all of the credits I was allowed, but I don’t remember seeing much about the Earned Income Tax Credit (I was using FreeFile to walk me through the process) so all I can do is hope that I got enough! I’m self employed, would that effect the Earned Income Tax Credit at all?

  10. I wish I had known about the savers credit, maybe I don’t save enough. My tax guy is good though so I got my earned income credit and my child credit and others I never would have found.

  11. My husband works from home in Canada for a company in the US- are there any special tax exemptions he can claim?

    • We’re not familiar with Canadian income tax, however, it might be a good idea to hire a Canadian accountant who has some familiarity with both tax systems, and let him/her prepare just the one year return. After that, you can do it yourself.

  12. Tax paying hours are nightmares for me. Tax evasion is a crime but tax saving is considered as smart financial management. Simple tips written by author can save a significant amount of tax money. You get a handful of information on reducing tax payments. The information you get here is free of cost. Have a look on them and pay less.

  13. Ellie H. says:

    These tips have been very useful for me. I’m in my first year of college and my father has been preparing my return for me. I told him that for the upcoming year, I would take care of my own return, so I have been gathering information and reading all that I can in order to do a good job. I want him to be proud of me, so I don’t want to mess it up.

  14. Yolanda says:

    Tip number 2 is very useful for me, because I am a university student. Now I know which form I need to file, in order to get educational tax credit.

    I am not very good at filing taxes, thankfully I have a great tax software in my house.

  15. Tip 3 was really on point thinking and planning about the future. Now is very important because a time will come when it might be too late to do that if we don’t plan early.

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