8 tax season moves to save you money
Every year at tax time, Americans leave money on the table in unclaimed federal income tax deductions, overlooked credits and unused tax strategies. Consider the following to discover some commonly missed ways you can lower your bill to Uncle Sam—or even end up with a refund.
Did you pay a caregiver?
If you paid for someone to take care of your child under age 13, or another qualifying dependent, you may be able to claim a tax credit for a portion of what you spent. (For more on what qualifies a relative as a dependent, see the IRS guidelines.)
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 your income, that could give you a tax credit of $1,050 for one dependent, or $2,100 for more than one. Your exact tax benefit depends on how much you (and your spouse, if you have one) paid for qualifying care expenses while you worked or sought employment, as well as the amount of your adjusted gross income.
You can still claim the dependent care credit if you use a Dependent Care Flexible Spending Account (FSA) at work, meaning you put pre-tax dollars into a special account you can use to pay for care. Bear in mind, though, that you can’t claim the same expenses for both the credit and the FSA.
Did you sell stocks or stock mutual funds?
If you sold stocks or stock mutual funds1 from a taxable account, don’t mistakenly pay capital gains taxes on shares purchased with reinvested dividends. The best way to ensure you’re calculating your capital gains tax correctly: 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.
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 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, or a deduction of up to $4,000 for qualified education expenses. To document your spending, keep your tuition bills and receipts for school-related books and supplies.
For more information on these and other education-related tax benefits, see the IRS overview of offsetting education costs.
Did you donate to charity?
You may get tax benefits from your charitable donations, so save your receipts whenever possible. If you don’t have all of your receipts, review your checkbook and credit card bills to jog your memory about donations you’ve made. Review the IRS details on determining the value of donated property.
Are you a National Guard member or military reservist who traveled for your 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 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 additional details on this and other tax benefits available to reservists.
Did you make your home more energy-efficient?
You can claim a tax credit of 30 percent of the cost of installing certain renewable energy systems placed into service before the end of 2016, including qualified solar electric property, solar hot water heaters, geothermal heat pumps, residential wind turbines and fuel cells. Beginning in 2017, you can get a credit of up to 30 percent of the cost of qualified solar electric property and solar water heaters. (The amount of the credit depends on when the property is placed in service.)
Have you moved to take a new job?
Here’s a tax tip when moving for a job: You may be able to deduct the cost of moving to your new location. To qualify for the deduction, your new job must be at least 50 miles farther from your home than the old job. You must also work full-time for a minimum 39 weeks during your first year in the new home. Consult the IRS web page about moving expenses for more details.
Did you pay mortgage interest payments or points?
Whether a mortgage is original or refinanced, the interest you pay is tax-deductible in two circumstances: if the loan is for your primary residence or it is for a second home you generally don’t rent out. If you paid mortgage points (prepaid interest that helps you get a lower rate) on your mortgage, you may be able to deduct those as well. The IRS offers a list of the criteria you must meet in order to deduct mortgage points.
Filing your tax return is probably not your favorite activity. But try to pay careful attention to commonly missed deductions, credits and other strategies to minimize your tax bill and keep more cash in your pocket.
Looking for more ideas? Merrill Edge offers additional ways to reduce your tax bill.
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