Five Tips for Getting the Tax Relief You Need
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.