There's no denying the fact that the U.S. tax code is extremely complex, and although it's loaded with key deductions and credits that can help countless Americans save money on taxes, many people pass up those perks -- either because they don't know they exist or they don't understand how they work. But missing out on key tax breaks can hurt you financially, and while you probably don't have the time or patience to sift through the tax code in its entirety, you should take the following tips to heart.
1. The Earned Income Tax Credit is refundable
It's estimated that 20% of eligible tax filers don't claim the Earned Income Tax Credit (EITC), which is really a shame given that it's among the most lucrative tax breaks out there. The EITC is designed to help low-income families, and eligibility is based on your earnings coupled with the number of qualifying children in your household, as follows:
DATA SOURCE: IRS.
Assuming you're eligible for the EITC, here's how much money you might get out of it:
DATA SOURCE: IRS.
Clearly, the EITC can be quite rewarding, but here's something else you should know about it: It's one of the few tax credits out there that's actually refundable. If you don't owe any taxes but are eligible for the credit, you'll get a check back for the difference.
To get any money out of the credit, however, you'll need to file a tax return. Many low-income families whose earnings fall below the filing requirement threshold opt not to submit a tax return, but if you don't, you could miss out on up to $6,318. It therefore pays to see if the EITC might offer you a refund, and file a return to collect it.
IMAGE SOURCE: GETTY IMAGES.
2. Travel can count as a medical expense
Many people are aware that it's possible to take a medical expense deduction if your out-of-pocket costs exceed 10% of your adjusted gross income (AGI). But many people don't realize that it's not just prescriptions, copayments, and medical equipment that count toward that 10%. If you spend money traveling to and from medical appointments, you can factor in those costs, which might bring your total well above the 10% threshold.
For example, if you take a car service to and from your weekly physical therapy appointment, you can include those costs in your calculation. The same applies to any parking fees you incur. Furthermore, if you need to travel out of town for medical care, you can include not only your air or rail fare, but reasonable lodging costs as well.
3. You can claim certain tax deductions even if you don't itemize
Most taxpayers opt for the standard deduction rather than itemize, and so they don't get to benefit from a number of key tax breaks. But there are certain deductions that you're allowed to claim even if you don't itemize on your return. These above the line deductions include:
- IRA contributions
- Health Savings Account (HSA) contributions
- Self-employment taxes
- Alimony payments
- Moving expenses
- Student loan interest
- College tuition and fees
- Educator expenses
It pays to read up on the deductions you're allowed to claim even if you don't itemize, because they could shave a chunk of money off your tax bill.
Though many people regard the IRS as a ruthless agency that will stop at nothing to cheat the working public out of its hard-earned money, in reality, it offers a host of tax breaks for filers at all income levels. The more you educate yourself on your options for lowering your taxes, the more money you stand to save.
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