Tax Time! The Five Biggest Tax Breaks to Take Advantage Of
The deadline to file your taxes is almost here. It’s a date that fills most Americans with dread. But if you know what you’re doing, it shouldn’t. It may be a hassle, but it’s also a time to get a little money back from Uncle Sam. In 2016, Americans received around $1.3 trillion in tax breaks. So how can you get a bigger piece of that pie for yourself? Here are five of the biggest tax breaks you can claim.
- Capital Gains Tax. When you sell an investment, such as stocks or real estate, for a profit, you make capital gains. The tax you owe on that is called capital gains tax. So how does this save you money? Well, if it’s an investment you’ve held for a year or more, then the rate you’re taxed is much lower than for the rest of your income. In fact, depending on what tax bracket you fall into, it may even be 0%!
- Retirement Plan Deferment. The capital gains tax applies to most investments you sell for profit, but not to investments that are part of your retirement plan, such as an IRA or 401(k). Those are subject to the regular tax rate. However, there are other tax breaks you can take advantage of with regards to your retirement savings. The main one is with regards to contributions you make to your retirement account. The portion of your income that you pay into it isn’t taxed until you retire and start collecting. If you’re paying into a 401(k), the tax break is claimed automatically. If you’re paying into an IRA, though, you need to list it on your 1040 form.
- Healthcare. Do you have a healthcare plan through your employer? If so, how is it implemented? Do they pay for your premiums directly, or do they allot you a certain amount to purchase healthcare on your own? If it’s the latter, see if there’s a way to switch to the former, in order to score a break on your taxes. If your employer pays for healthcare directly, either fully or in part, that money isn’t taxed. However, a healthcare allowance paid to you is subject to taxes. Ask if they’d be willing to pay for even just a portion of your premium, to save you tax money.
- Mortgage Interest. Are you paying a mortgage on your house? Then you’re eligible for a significant tax deduction. Any and all interest you paid on the mortgage throughout the year is deductible, provided you’re actually living in the house you’re paying the mortgage on. This can add up to a significant amount of money, particularly during the first few years, wherein almost all the money you pay goes towards interest, rather than the principle. This deduction can be applied to student loan payments as well. Your lender should have sent you a 1098 form, listing how much interest you paid over the course of last year. Look at it to see how much you can save.
- Earned Income Tax Credit. If you make under a certain amount of money, you may be eligible for the EITC. How much it’s worth depends on a variety of factors, including whether or not you have dependents, but it can reduce your tax bill by over $6,000. The Schedule EIC form can help you determine whether or not you’re eligible, and how much you can claim.
These are just a few tax breaks you may be able to claim. What you’re eligible for and how much you can get back depends on a number of factors, but if you know what you’re doing, you should be able to claim a substantial amount—or at least keep in mind ways you can save next year.
There are a number of online tax services that can help you find these deductions and tax breaks for a nominal fee—or you can bring it to a tax professional, who can look over your return personally and help you maximize your refund. With a little research and a little effort, though, you can find and claim these tax breaks yourself, eliminating the middle man and saving even more money. Whichever way you decide to do it, though, tax time can be both productive and lucrative, with just a little bit of planning.