The clock is ticking away when it comes to the various ways Americans can keep their hard-earned money in their pockets with April 15 being the tax deadline. Taxpayers tend to leave too much tax return money on the table, and this problem mostly occurs because they haven’t known about (or taken) all of the deductions and breaks that were permitted.
A research paper by the University of California notes that every year Americans pay roughly $1.5 trillion income taxes. That’s a really big number in which approximately 8.3% of U.S gross domestic product goes straight from taxpayers’ bank account into the U.S Treasury.
In addition, the report states that American taxpayers have a routine of selling themselves short on their tax returns and walking away from the money they could have saved. This has been seen especially in key areas claiming U.S government tax deductions and benefits and retirement savings.
All this boils down to the tax breaks, in the form of tax credits and tax deductions as you prepare to save money on your taxes this year it is important to understand the difference between the two tax breaks. Tax credit – this directly slashes your Tax bill to Uncle Sam it’s dollar for dollar cut on your tax bill. Tax deduction- this lowers the amount of income IRS can tax. A good example of a common tax deduction available to U.S. taxpayers is the standard deduction.
Simply, tax deductions are subtracted off the amount of taxable income you earn. It’s possible to overpay the IRS and in that case, get a refund, but that’s if you can stack up enough to overpay tax deductions.
These 10 tax breaks to get you your fair share:
1. Student loan interest deduction allows U.S. families to deduct interest paid on student loans. The amount can be up to $2,500.
2. American opportunity tax credit allows college households to claim $2,000 in federal tax deductions on assorted college costs like fees, textbooks, tuition, and meal plans. An additional 25% can be claimed by qualified taxpayers of %2,000 more paid out in college costs.
3. Child and dependent care credit allow households to claim a deduction of up to $3,000on daycare costs for kids that are under 13 years; this is also applicable for senior parents, dependent or an incapacitated spouse. The amount can double up to $6,000 for two or more family dependents.
4. Child tax credit provides a tax break of up to $2,000 for parents and $500 for a non-child dependent.
5. Earned income tax provides up to $6,431 in tax deductions depending on the amount of income and number of children in a household.
6. Charitable donation tax break is available to taxpayers who itemize their deductions and also enables taxpayers to deduct charitable donations from their taxes.
7. Medical expenses tax deduction allows taxpayers to claim medical costs exceeding 7.5% that is unreimbursed of the tax payer’s adjusted gross income over a year.
8. State and local deductions allow taxpayers to claim up to $10,000 In tax deductions for a combo of local and state taxes. This including property taxes.
9. Retirement plan tax deductions allow up to $18,500 into a self-employed or company sponsored 401(k) plans. Depending on your income status deductions on individual retirement accounts are available.
10. Health savings account tax break – with this health savings accounts up to $3,450 for individual contributions and $6,900 for family-level contributions.
If needed, work with a specialist to enable you to save the most money possible on your tax returns this year.