5 Tax Deductions That Could Save You Big Bucks in 2016

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Even if you haven't filed your 2015 tax return yet, there's little you can do at this point to increase your tax refund or reduce your tax liability -- aside from contributing to an IRA. However, it's not too early to start thinking about your 2016 taxes. Some of the moves you make now could save you lots of money when the next tax season rolls around, and here are five tax breaks that can be especially lucrative.

The IRS will pay you to save for your future
One of the best tax deductions you can get is for saving for your retirement. Qualified contributions to tax-deferred retirement accounts can get you a big tax break. For example, if your employer offers a 401(k) or similar retirement plan, you can choose to defer up to $18,000 of your compensation ($24,000 if over 50) into your account, and your taxable income will be reduced by the same amount.

Or, you may be able to qualify for a deduction for up to $5,500 in traditional IRA contributions ($6,500 if over 50), depending on your income and whether or not you or your spouse has an employer-sponsored retirement plan.

In addition to reducing your taxable income, lower-income taxpayers can qualify for the Retirement Savings Contributions Credit, also known as the Saver's Credit. Depending on your income and filing status, this credit can be worth up to 50% of your first $2,000 of retirement contributions for the year. Note that this isn't a deduction -- it can add up to $1,000 to your tax refund. If you qualify for this credit, the government will literally pay you to save money for your retirement.

Education deductions and credits
There are several tax benefits for education, and these are the three most common:

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  • American Opportunity Tax Credit: This credit is worth up to $2,500 per year for qualifying expenses related to the first four years of higher education. To claim this credit, the student must be enrolled at least half-time in a recognized degree or credential program. To claim the full credit, the taxpayer must have a modified adjusted gross income of $80,000 or less if single, or $160,000 or less if married.
  • Lifetime Learning Credit: This is slightly less lucrative than the American Opportunity Credit, and can result in a credit of up to $2,000 per year. However, it isn't restricted to the first four years of school, and the student doesn't need to be enrolled half-time or be pursuing a degree or credential. This credit can only be claimed with MAGI of $65,000 or less ($130,000 for married joint filers).
  • Tuition & Fees Deduction: Another option is this deduction, which can reduce your taxable income by up to $4,000. This has similar requirements to the Lifetime Learning Credit, and phases out for MAGI over $65,000 and $130,000 for single and married filers, respectively.

For a more thorough description on these education tax benefits, check out this article.

Do you plan on moving in 2016?
If you move in 2016 for job-related purposes, you may be able to deduct your moving expenses as long as the move passes two qualifications -- the time and distance tests.

  • The time test says that you need to work full-time for 39 out of the 52 weeks immediately following the move. You don't necessarily need to have a job lined up before you move -- you can move, find a job, and still claim the deduction if you satisfy the time requirement.
  • The distance test is a bit trickier. According to the IRS's wording: "Your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home."

If you qualify, this deduction can be pretty big. You can deduct the cost of driving to your new home, the costs of packing, shipping, and storing your belongings, and the cost of movers, just to name a few.

Tax deductions for homeowners: more than just mortgage interest
The mortgage interest deduction is widely known, and allows you to deduct the interest you pay on mortgages on a first and second home, up to a maximum of $1 million in original mortgage debt. To take advantage, you need to itemize deductions on your tax return.

In addition to mortgage interest, you can also deduct the property taxes you pay on your home(s). And this one isn't limited to a first and second home -- any homes you own qualify.

Low- and moderate-income taxpayers can also deduct any mortgage insurance premiums. This deduction allows taxpayers to treat qualified mortgage insurance expenses as mortgage interest for tax purposes. Unlike the other deductions, this phases out for married couples with adjusted gross income over $100,000, or over $50,000 for single filers.

Do you work from home?
If you work from home, the home office deduction can be a lucrative tax break. Qualified taxpayers have the choice of deducting a flat rate of $5 per square foot of dedicated home office space, or their actual business-related expenses of maintaining the home office.

However, it's important to be sure that your home office is really a home office as defined by the IRS. The first condition is that the space must be exclusively used as a home office -- a dual-purpose space such as a guest bedroom with a desk in it doesn't qualify. And the home office has to be your principal place of conducting your business. Here's a more thorough description of this deduction so you can know for sure whether it applies to you or not.

The list goes on
Technically, this is more than five deductions. I actually mentioned a total of seven tax deductions and three credits you may be able to use.

Still, the U.S. tax code is more than 74,000 pages long, and these are just a few of the many deductions and credits found within it that you might qualify for. This is why thorough tax preparation is so important -- researching and knowing all of the deductions and credits to which you're entitled could literally save you $1,000's. The IRS isn't going to hold your hand and help you get every dollar that's yours, so it's up to you.

The article 5 Tax Deductions That Could Save You Big Bucks in 2016 originally appeared on Fool.com.

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