The tax filing deadline (April 18) is rapidly approaching, so clear off a workspace and start by answering two big questions.
Will you take the Standard Deduction or Itemize? The standard deduction is a set amount that increases based on inflation.
The other option is to itemize, which is when you tally up certain deductions including state and local income or sales taxes (limited to $10,000), real estate and personal property taxes, home mortgage interest, personal casualty and theft losses from a federally declared disaster, gifts to a qualified charity, and unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income.
If your total deductions are greater than the standard deduction amount, you will be among the nearly 10% of taxpayers who will itemize.
Have you claimed all of the credits that you are due?
So many bemoan the loss or limitations to deductions, but tax credits are more valuable, because they are dollar-for-dollar reductions of the income tax owed, which is why you should claim as many as you can.
Here are the biggies:
Earned Income Tax Credit (EITC)
The EITC is aimed at workers with low to moderate income ($59,187 or less) when they file their tax return. The IRS notes that “many people risk missing out on the credit because they don’t know they’re eligible — especially people who had a major life change and may qualify for the first time this year.”
Check IRS.gov to determine if you qualify and for how much, which is determined by the size of your family. The maximum amount is $7,430 with three or more qualifying children.
Child Tax Credit (CTC)
Reverts to the pre-pandemic level of a maximum of $2,000 per qualifying child under the age of 17 and is partially refundable (up to $1500). The income threshold at which the child tax credit phases out increased to $200,000 ($400,000 married filing jointly (MFJ)).
Child and Dependent Care Credit
Sounds similar, but this is different from the CTC. This nonrefundable credit allows you to claim from 20 – 30% of expenses up to a maximum of $3,000 for one qualifying person ($6,000 for two or more) to offset expenses associated with care for dependents (children under the age of 13, a dependent spouse or dependent adults that you claim on your tax return) and it is subject to Adjusted Gross Income (AGI) phase outs. Check IRS.gov to determine if you qualify.
Credit for Other Dependents
If you don’t qualify for CTC, you may be able to claim this credit, which maxes out at $500 for each dependent who meets certain conditions, including: dependents under the age of 18, other dependent parents or relatives that you support and even dependents living with you, who aren’t related to you. This credit phases out at $200,000 ($400,000 MFJ). Check IRS.gov to determine eligibility.
American Opportunity Tax Credit
For qualified education expenses paid for an eligible student for the first four years of higher education. The amount of the credit is 100% of the first $2,000 of qualified education expenses you paid for each eligible student and 25% of the next $2,000 of qualified education expenses you paid for that student.
To claim it, your modified adjusted gross income (MAGI) must be $80,000 or less ($160,000 for MFJ). Reduced amounts available for incomes of $80,001 – $90,000 ($160,001 – $180,000 MFJ).
Savers Tax Credit
This credit can offset part of the first $2,000 workers contribute to IRAs and workplace retirement plans (401(k)s, 403(b)s, 457 plans) and is available for singles with incomes up to $34,000 in 2022 (MFJ up to $68,000).
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected]. Check her website at www.jillonmoney.com.
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