8 tax deductions and credits to save you more money

Tax season may not be your favorite time of year, but it could be more rewarding if you know the right strategies. You may be leaving money on the table in unclaimed tax deductions and credits without knowing it. Consider the following questions to potentially lower your bill to Uncle Sam—or even end up with a refund.

1

Did you pay a caregiver?

Whether it’s a nanny for your newborn or in-home care for another family member, if you paid for care of your dependent child under age 13 or another qualifying person, you may be able to claim a tax credit for a portion of what you spent.

The tax credit can be up to 35 percent of as much as $3,000 for one child or dependent, or $6,000 for two or more. Depending on how much you paid for qualifying expenses while you worked or sought employment, as well as the amount of your adjusted gross income, you could receive a tax credit of $1,050 for one dependent, or $2,100 for two or more.

You may be able to claim the dependent care credit even if you contribute pre-tax dollars to an employer-provided Dependent Care Flexible Spending Account (DCFSA). Keep in mind, though, you may not get the full dependent care credit if you contribute to a DCFSA.

2

Did you sell stocks or stock mutual funds?

If you sold stocks or stock mutual funds1 from a taxable account, don’t forget to include in your tax basis the amount of reinvested dividends used to acquire shares, otherwise you may mistakenly overpay capital gains taxes on shares purchased with reinvested dividends. The best way to ensure you’re calculating your capital gains tax correctly is to keep all your investment account statements, which show how many shares you purchased with reinvested dividends over the life of your account. Read more from Merrill Edge about mutual funds and taxes.

3

Did anyone in your family attend college or graduate school?

If you, your spouse or your dependent child was in college at least half the year, you may be able to take the American Opportunity Tax Credit for up to $2,500 per student. The credit is for tuition and certain related expenses at eligible educational institutions, and it can be claimed annually for each student’s first four years of study. You can get the full credit if your modified adjusted gross income is $80,000 or less ($160,000 for married couples filing jointly). The credit is fully phased out for modified adjusted gross incomes above $90,000 ($180,000 for married couples filing jointly).

You may instead be able to claim the Lifetime Learning Credit of up to $2,000 per tax return for college or graduate school tuition and certain related expenses, subject to certain income limitations. You cannot claim both credits for expenses of the same student on one tax return. Document your spending and keep your tuition bills and receipts for school-related books and supplies in a safe place, as they may be needed come tax time. For more information on these and other education-related tax benefits, see the IRS overview on offsetting education costs.

4

Did you donate to charity?

Did you give money, or donate property, to any organizations or causes that are important to you on Giving Tuesday or any other day of the year? If so, you may get tax benefits from your donation. Save all those receipts and review your checkbook and credit card bills to jog your memory about donations you’ve made. You can learn more about the rules for charitable contributions on the IRS website.

5

Are you a National Guard member or military reservist who traveled for work?

The federal tax code allows deductions for some military service-related travel expenses, including mileage, hotel, parking, tolls and some meal costs. If you are an Armed Forces reservist and you travel overnight more than 100 miles from home for your service, you may be eligible to deduct unreimbursed travel expenses. You don’t need to itemize deductions, and these deductions aren’t subject to adjusted gross income limits. The IRS has more information on this and other tax benefits available to reservists.

6

Did you make your home more energy-efficient or buy an electric vehicle?

Talk about environmentally friendly: You may be able to claim a tax credit of up to 30 percent of the cost and installation of certain renewable energy systems. This credit is available for qualified property, including certain solar property, placed in service before the end of 2021.

If you bought a qualifying electric vehicle before 2018, you may be able to claim a tax credit between $2,500 and $7,500.

7

Did you pay mortgage interest payments or points?

You may be able to deduct the interest you pay on your original or refinanced mortgage for your primary home and one other property that is considered a qualified residence, up to certain limits. If you paid mortgage points (prepaid interest that helps you get a lower rate) on your mortgage, you may be able to deduct those, too. Visit the IRS website for a list of the criteria you must meet to deduct mortgage points.

8

Did you contribute to a retirement account on a tight budget?

Saving for retirement when you don’t earn a lot can also save you money at tax time. If your adjusted gross income is less than $31,500 ($63,000 for married couples filing jointly), you may qualify for the Retirement Savings Contributions Credit, also known as the Saver’s Credit. Qualifying individuals may get a tax credit of up to 50 percent of their retirement plan contributions up to $2,000 ($4,000 for married couples filing jointly, depending on their adjusted gross income). The IRS offers more details on eligible individuals and retirement plans that qualify for the credit.

Filing your tax return may be the last thing you want to do in your free time, but it can pay off. Consider the commonly missed deductions and credits to minimize your tax bill and keep more cash in your pocket.

Merrill Edge offers additional ways to reduce your tax bill.

  1. Unlike bank deposits, investments are not insured by the FDIC; are not a deposit or other obligation of, or guaranteed by, a bank; and are subject to investment risks, including possible loss of the principal amount invested.
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