Doing your taxes, much like going to the dentist, generally stirs up feelings of angst and procrastination. But if you know how to the work the tax system the best way possible, you just might come out ahead in your yearly battle with the IRS.
One of the ways to win the game is by taking advantage of all the tax credits you might be eligible for. And the bigger the tax credit, the better your chances of a refund or a much smaller tax bite than you might have imagined.
With that in mind, here are three of the biggest tax credits you can put to work for you.
Check Your Eligibility
American Opportunity Tax Credit – It used to be known as the Hope Credit, and for years this tax credit helped people pay off the high costs of higher education. Rebranded in 2009, the American Opportunity Tax Credit covers four years of a college education. It’s available for people whose adjusted gross income is $80,000 or less or $160,000 for married people who file jointly. The AOTC operates on a sliding scale, so the more income you have, the less tax credit you’ll be entitled to. It covers tuition, books and other course materials paid during the taxable year and is available for each student in a qualifying family. It should be noted that the AOTC is set to expire in December 2017.
Lifetime Learning Credit – A companion tax credit to the American Opportunity Tax Credit, the Lifetime Learning Credit also offsets the costs of a college education. The biggest difference between the AOTC and the Lifetime Learning Credit is that it is available for any years of a post-secondary education vs. the OATC which just applies to the first four years. The LCC benefit may be as much as $2,000 per student and the income requirements are different than for the AOTC. In 2015, it was applicable for individual taxpayers who earned $55,000 or less or married couples filing jointly who earned $110,000 or less.
Savers Tax Credit – To encourage people to put more toward their retirement accounts, the Savers Tax Credit was enacted. It applies to contributions to 401k plans and investment retirement plans. As with the other tax credits, it benefits the lower wage earners the most, up to $1,000 for individual tax filers and up to $2,000 for married couples filing jointly. This tax credit has a doubling effect, because those who contribute get to deduct the contribution to their retirement plan off the top of their income, and they get to enjoy an added additional tax credit reduction as well.
Next, learn about 3 tax credits that are great for parents and families.