Do you dread income tax time every year?
Well if there is one thing to remember during income tax time, to maybe ease the process, remember this: Three out of four taxpayers receive a federal refund, and the average direct-deposited refund last year was $3,116.
Pretty nice tax refund don’t you think?
Tax savings opportunities
You have almost as many tax savings opportunities as last year, thanks to the fiscal cliff-averting tax changes passed in early January.
In addition to extending the lower Bush-era income tax rates for nearly all taxpayers, the American Tax Relief Act made permanent or extended dozens of tax breaks.
This year’s tax law changes included thousands of dollars in tax benefits for working families, college students and homeowners in particular.
When you’re ready to file your federal tax return, watch for these key tax benefits:
The child tax credit is worth up to $1,000 per eligible child, and is refundable for taxpayers with an earned income of more than $3,000.
Parents who work or attend school and pay for child care may qualify for the child and dependent care credit. The maximum amount is $3,000 per qualifying dependent or $6,000 for two or more qualifying dependents under the age of 13.
The earned income credit is for working taxpayers with low to moderate income. The refundable credit amount is based on filing status, number of qualifying children and income level.
Families with three or more qualifying children could qualify for up to $5,891.
The refundability of the adoption credit has expired, but the credit is still available and worth up to $12,650 in qualified expenses for 2012.
College and education
You could deduct up to $4,000 for tuition and fees paid in 2014.
Paying off student loans? You may be able to deduct up to $2,500 in interest paid during 2014.
The American Opportunity Credit is worth up to $2,500 per student for post-secondary tuition, fees and course materials.
Contributing to a Coverdell Education Savings Account? You can exempt a maximum of $2,000 per student in annual contributions.
If itemizing your deductions, you may be able deduct mortgage insurance premiums paid during 2014.
The nonbusiness energy property credit for qualified energy-efficient home improvements (insulation, exterior windows and doors, central air conditioners, water heaters and other improvements) was extended for 2012 and 2013.
If you’ve claimed this credit on previous year tax returns after 2005, you must subtract the collective amount from the $500 available for 2012.
Grade K-12 educators can deduct $250 in out-of-pocket expenses for classroom supplies.
If you itemize and have paid for work-related education, there’s a deduction for your costs paid minus any employer reimbursed amount.
There are hundreds more tax benefits that are up for grabs on this year’s federal returns due April 15.
Gather all your tax forms (W-2, 1099, 1098, etc.), receipts and a copy of last year’s return first. Use a checklist to help determine what info you’ll need.
More to explore:
- What is the Earned Income Tax Credit?
- Is there any benefit to filing my return early?
- The Tax Benefits of Contributing to an IRA
- 7 FAQs about the Earned Income Tax Credit