The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.
Tax time is coming fast and you may be looking for some ways to lower your taxable base income. I know we were! This can be done by taking advantage of every single tax deduction and tax credit that you possibly can get.
Here are the top 5 tax deductions and credits that you may qualify for:
Education Tax Credits
The American Recovery and Reinvestment Act has made provisions for higher education credits for people going back to college. It is known as the American Opportunity Tax Credit and it pays up to $2,500 for the first four years of college. Anyone with an adjusted gross income below $80,000 is eligible for this student loan tax credit.
If you are going back to school to earn a graduate degree, take a look at the Tuition and Fees Deduction and the Lifetime Learning Credit. We were able to save us a couple of thousand dollars through the Lifetime Learning Credit “thanks” to my husband’s 2010 graduate school expenses.
Capital Gains Taxes or Investment Losses
Taxes on your capital gains are usually lower for most investors than their income tax rate. The average capital gains tax rate is just 15% on investments held for more than one year. The reduced capital gains tax rate can save the average taxpayer a lot of money.
If you actually lost money on your investments instead, remember to declare those losses on your taxes too. You can also claim losses from real estate or theft.
Some people fail to take advantage of all of the deductions they can get from donating money to charity. Contributions to churches, not for profits, and other recognized charities can shave hundreds or thousands of dollars off of your tax burden. It’s not only the cash contributions that qualify. Cars, clothes, food, and supplies donated to charity qualify for a deduction too. One thing to keep in mind though is that all of your deductions will need to add up to more than your standard deduction before itemizing will make sense.
Remember that any money that you contributed to your 401(k) or a Traditional IRA will lower your overall taxable income. People with moderate incomes and lower income individuals get a dual benefit as well since they get the normal taxable income reduction and are eligible for a retirement tax credit as well.
Did you have a major operation during the year or incur some other major medical expense? You can take a tax deduction for any medical expenses that exceeded 7.5% of your adjusted gross income. Self-employed business owners can go ahead and fully deduct all of their health insurance premiums.
What other tax deductions or credits should we all keep our eyes open for? I remembered to keep up with all of my blogging expenses, which helped offset the taxes on my overall profits a bit. Did you have something similar to deduct Anything we may all want to keep in mind?