Tips for Lowering Your Tax Bill


Many people dread tax season and the April 15th deadline every year. Paying taxes is simply something Americans do, and most do it grudgingly. Scrambling to find last-minute deductions and tax credits has become something of a rite of passage for many taxpayers. Luckily, there are several such credits and deductions available for many people who are filing taxes. Read on for more information about how you can leverage these savings opportunities for yourself.

The American Opportunity Tax Credit

Education expenses are a great way to receive a tax credit when you file your returns for the previous year. The American Opportunity Tax Credit is designed to help offset some of the costs associated with college tuition, fees, and books for yourself, a dependent loved one, or a spouse. This tax credit applies for the first four years of college education. Here are some of the highlights of this credit:

Single taxpayers with incomes up to $80,000 in modified adjusted gross income (MAGI) can qualify for the full tax credit. The amount of the credit total drops gradually for single taxpayers making between $80,000 and $90,000. If a tax filer makes more than $90K, he or she is ineligible to claim the credit.

Married taxpayers who file joint tax returns can qualify for the education credit if their MAGI is up to $160,000. Over $160,000 to $180,000 in MAGI and the credit is gradually phased out. Over that $180,000 and the jointly-filing couple is no longer eligible for the credit.

The education credit is set to fully cover the first $2000 in qualified educational expenses; in other words, 100% of that first $2000 is covered. This is for any eligible student you paid educational expenses for in 2016. 25% of additional expenses paid for each student in excess of the first $2000 are credited as well.

If the education credit reduces the amount of tax you pay to $0, the credit is still considered partially refundable. Filers will receive 40% of the credit as a refund, or up to $1000, even if you owe nothing in taxes.

The Saver’s Credit

The federal government WANTS U.S. citizens to save privately for retirement. This helps to reduce financial burdens on government-sponsored programs like pensions and social security. To help sweeten the pot, the IRS introduced something called the Saver’s Credit.

If you contribute $2000 or more to an Individual Retirement Account (IRA) or an employer-sponsored 401(k), the Saver’s Credit can return between 10% and 50% of that first $2000. Of course, there are certain income limits and rules to be aware of, including:

  • In 2016, a single taxpayer may make less than $30, 750 to qualify for a partial or full credit for this tax break. The maximum credit for a single taxpayer is $1000.
  • Married couples who file jointly and earn less than $61,500 can qualify for a partial Saver’s Credit. The maximum credit for joint-filing married couples is $2000.

Restrictions on claiming the credit include:

  • No one under the age of 18 may claim the Saver’s Credit, even if they contribute to a qualifying retirement plan.
  • Anyone who is claimed as a dependent on someone else’s tax return cannot claim the credit.
  • Anyone who is a student (defined by regulations as enrollment for any part of five calendar months and enrolled full time) cannot claim the credit.

Energy Tax Credits for the 2016 Tax Year

For the 2016 tax year, there are two federal tax credits that fall under the energy category. These are the Non-Business Energy Property Credit and the Residential Energy Efficient Property Credit.

For the Non-Business Energy Property Credit, certain energy-efficient home improvements qualify residential property owners/taxpayers for 10% of the cost of such improvements, which include insulation upgrades, air sealing through the replacement of doors and windows, or the installation of energy-saving heat pumps and HVAC systems. Credit limits tend to be small; for example, replacing a furnace or boiler with a more energy-efficient model can net a tax credit of only $150.

The Residential Energy Efficient Property Credit is a bit more generous. This tax credit is designed to help offset the costs associated with energy-efficient home improvement projects, especially those that generate electricity from alternative/renewable sources. Products like solar panels, geothermal heat pumps, and electricity-producing wind turbines in the principal or secondary home owned by the taxpayer may qualify for the credit. This credit is equal to 30% of the equipment costs, including labor and installation of that equipment.

There may also be significant state and local tax credits, rebates, and deductions available to homeowners who qualify. Typically, installing energy-efficient home products like insulation, solar panels, roofing, or heat-reflective exterior coatings can qualify homeowners for credits. It is best to check with local tax professionals and regional utility providers for details on other tax credits available to property owners.

Job-Seeking and Job-Change Expense Credits

Good news for those seeking employment in 2016. To ease the burden on expenses related to looking for a new job, the IRS has authorized tax deductions related to expenses like preparing a resume, fees from employment and headhunting agencies, and travel expenses for interviews. If you were searching for your first job in 2016, or were looking for a job in a new occupational field, you are not eligible for these deductions.

If you relocated 50 miles or more to take on a new job in the same field and meet other IRS requirements, moving expenses can be deducted from 2016 taxes. These deductions are not available if there was employer reimbursement of moving expenses that were excluded from your income, however.

Take Advantage of Tax Deductions and Credits

No matter your personal or financial circumstances, there are a wide range of available federal tax credits and deductions. As always, tax professionals can help you find the deductions and credits that you may qualify for. With the help of these tax pros, you could save substantial money in tax payments for 2016 and beyond.


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