Here Are Tax Strategies For You!
If you think that having a tax strategy is something that only applies to the wealthy, think again. If you plan ahead there are a number of tax strategies that could help save money for middle-class families all over America.
This goes beyond the home mortgage interest deduction or the child tax credit. You will see that there are even tax credits for single American’s on a middle class salary!
Take a look at two tax strategies that just might save you some very real tax dollars.
Save and Be Credited
If you are single and have adjusted gross income of $30,500 or less, or you are married and have AGI of $61,000 or less, you can make out even better on a retirement contribution through the Saver’s Tax Credit.
The credit is a potential bonanza for part-time workers who fall within the income limits. You can claim a tax credit worth 10% to 50% of the amount you put in, up to a maximum credit of $1,000 ($2,000 for joint filers). Contributions to a workplace plan, such as a 401(k) or 403(b), as well as contributions to a traditional, Roth or SEP IRA, are eligible for this credit.
The lower your income, the higher the percentage you get back via the credit. Some key exceptions: Taxpayers under age 18, full-time students and those claimed as dependents on their parents’ returns are not eligible, regardless of their income.
And here’s the beauty of a credit compared with a deduction: While deductions reduce the amount of your income that can be taxed, credits reduce the amount of tax you owe—dollar for dollar. You’ll need IRS Form 8880.
American Opportunity Credit
This tax credit is available for up to $2,500 of college tuition and related expenses (but not room and board) paid during the year. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). Single taxpayers with MAGI above $90,000 and married couples with MAGI above $180,000 are ineligible for the credit.
The American Opportunity Credit is juicier than the old Hope Credit—it has higher income limits and bigger tax breaks, and it covers all four years of college. And if the credit exceeds your tax liability (whether derived from the regular income tax or the alternative minimum tax), up to 40% of it is refundable. For example, suppose you owe $1,900 in federal taxes and qualify for the full credit. The nonrefundable portion of the credit will reduce your tax bill to $400, and the first $400 of the refundable portion will lower your bill to zero. You’ll receive the remaining $600 as a tax refund.
– via www.kiplinger.com
Tax Strategies That Can Help You Right Now
If you haven’t taken advantage of tax savings for your children’s college funding yet, don’t be dismayed. Under some conditions, you can start getting a tax deduction and use the money almost immediately.
Here is a good explanation of how you can make the most of your 529.
The tax benefits of a 529 college savings plan are baked right into the plan—you put in after-tax money and the proceeds grow tax-free, like a Roth individual retirement account. In some 34 states and the District of Columbia, you also get a tax benefit on your state taxes. But there’s more to it than that.
Depending on the state, each parent can make a contribution for each child. That’s why Patrick Beagle, a financial planner at WealthCrest in Springfield, Va., has four accounts for his two children. Beagle and his spouse each contribute the maximum of $4,000 per year for his state’s tax break, for a total of $16,000.
You can also front-load your 529 savings by making several years of contributions at once, something President Barack Obama and his wife Michelle were able to take advantage of for their two daughters, putting $240,000 away all at once in 2007.
Depending on the state, there may be no time limit on how long your contribution has to stay in the 529 account before you get a deduction. If you have a child who is already in college, you can make your yearly contribution, get the tax credit and then withdraw it for use immediately.
– via MONEY.com
Do you use tax strategies when addressing your finances?