If there’s one that resident in the Portland metropolitan area can agree on, it is that income taxes are extremely high. Despite the lucrative minimum wages relative to the rest of the state, Oregonians aretired of getting fleeced
. But are you aware of all the ways that the IRS offers income tax breaks for qualifying individuals? Some are easier to recognize and others seem unorthodox. The fact of the matter is that as a taxpayer, you need all the tools at your disposal. For this,
has an expert team of Tax Preparers and Accountants that understand what it is to save money and enjoy all the wonderful opportunities this state has to offer. In this article, we’ll take a look at a number of ways in which you can discover income tax breaks. At the end, we’ll provide some information to get you started saving money today.
One oversight that is fairly common among taxpayers is not taking advantage of credits. Why are credits so valuable, you ask? The answer lies in how they work for your tax returns. Instead of reducing the amount of income that can be taxed, credits reduce your tax bill dollar for dollar. Credits can easily be thought of as free money if you owe money! To give you an example of credits versus deductions, if you are in a 25 percent tax bracket, each dollar of deductions is worth twenty-five cents. Each dollar of credits is worth a dollar. Pretty significant, right?
For every child, you are allocated $1,000/year per child for a Child Tax Credit. Restrictions do apply, as the child must be filed as a qualifying dependent and be less than 17 years old.
In addition, you may also qualify for a tax credit worth 20 – 35% of the amount that you have paid for child care while working. However, if your employer offers a child care reimbursement account, allowing you to pay for your child care with pretaxed dollars, it may make more sense to use that plan for deeper savings.
This reduction, however, isn’t completely foolproof. For instance, you can’t double dip for credits. The expenses that you’ve paid through the child care plan cannot be used simultaneously to generate the tax credit. This exception does have its own exception: though you are limited to only $5,000 in expenses through a tax-favored reimbursement account, amounts up to $6,000 are available for the care of two or more qualifying children. The advantage of this is that if you reach the maximum at the account at work, but end up spending more, the additional $1,000 can be covered elsewhere.
We h2ly recommend that you Find a Tax Preparer to determine just how much you deserve to save.
Going to college? Perhaps you’ve heard of the Hope Credit in the past? The American Opportunity Credit is a replacement for the Hope Credit, as this type of credit is now valid for four years instead of the previous two-year limit. There’s a little bit of math involved in the calculation of the American Opportunity Credit. The first $2,000 qualifies of your college expenses qualify, while the subsequent balance is 25% of the remaining balance, capping out at $2,500. The full credit is available to students who have a modified adjusted gross income (MAGI) of $80,000 or less ($160,000 or less for married couples filing a joint return, not separate). As your income increases above these threshold, a phase-out begins, reducing that amount credited.
It is worthy to note that you can receive money back for a refund if the credit exceeds your tax liability. This differs from most credits, as they will match dollar for dollar but not grant a refund. So, it’s about time you start making money from college, even if you haven’t joined the workforce yet!
Oregon is certainly booming with new jobs, but if you were among the millions of unemployed last year seeking new work, you may be qualified to earn deductions based on the expenses incurred from the job hunt. First, it is essential that you’ve kept track of your expenses, so you can itemize these expenses as under “Miscellaneous Expenses.” Even if your job hunt was unsuccessful, these expenses still qualify.
The catch is that these expenses can only be deducted when they exceed 2% of your adjusted gross income (AGI). Also, if this is your first time looking for a job, these expenses won’t qualify. A quick list includes, but is not limited to:
In addition, if this is your first job hunt, don’t be discouraged. Moving expenses related to landing a job are deductible, even if you choose a standard deduction versus itemizing. To qualify, your first job must be at least 50 miles or more from your old home. If your new job fits this description, you are able to deduct the cost of getting yourself, your household goods, and even your pets to the new area. In 2015, you can deduct 23 cents/mile plus parking and tolls. Not bad for entering the workforce! If you’re looking for a full list of deductible expenses, the IRS has Publication 521 that can help reduce the guesswork on what’s deductible. You may be surprised what is and what isn’t.
BTL & Company, P C, Tax & Accounting