Cutting your tax liability is an art. It requires creativity, commitment, and a long-term vision. McVay Business Services in Pensacola Florida is a full service tax and accounting firm. We have the creativity, commitment and long term vision to take care of your business and personal tax return needs. 850-725-5696. Mike@MikeMcVay.com. www.PensacolaFLTax.com
Here's a quick story to show you what I mean. Near the turn of the 20th century, a French postman named Ferdinand Cheval started collecting stones along his delivery route. Over the next 33 years, he used those stones to build a fantastically ornate miniature palace standing some 30 feet high in places.
What does that have to do with taxes? Well, within the IRS' labyrinthine tax code, there are countless tax credits that, taken individually, have only a small impact. But stack them up as Cheval stacked his stones, and eventually a palace emerges.
Remember, a tax "credit Opens a New Window.," like the ones listed here, is different from a "deduction Opens a New Window.." A tax credit directly reduces the total tax amount owed. A deduction, however, only reduces the amount of income on which you must pay tax. Therefore, tax credits are often more valuable. Consider putting these broadly applicable tax credits to work for you.
The Lifetime Learning Credit
Those who qualify for this non-refundable credit Opens a New Window.can claim 20% of their first $10,000 in education-related expenses, for a maximum credit of $2,000. You can claim the credit for educational expenses incurred by you, your spouse, or a dependent listed on your tax return. The credit applies to required expenses for undergraduate, graduate, and professional degree courses. This includes courses to acquire or improve job skills. The full value of the credit is available to those with a modified adjusted gross income Opens a New Window.(MAGI) of $65,000 or less. This limit rises to $131,000 for those who are married and filing jointly.
The IRS is surprisingly flexible with the Lifetime Learning Credit, which can even be applied to qualified education expenses paid for with a loan. Additionally, there is no limit to the number of years in which you can claim it: As long as you're taking qualifying courses and paying qualifying expenses, you're eligible.
You can find more details on the Lifetime Learning Credit and its restrictions in this article Opens a New Window..
American Opportunity Tax CreditThe AOTC is powerful because it offers substantial savings and has higher income limits than the Lifetime Learning Credit. IRS rules state that those with a MAGI of $80,000 or less are permitted to claim the credit for qualified student expenses. For joint filers the AGI limit is $160,000. You can cash in on the full credit of $2,500 per student against expenses like tuition and course materials as long as your modified adjusted gross income Opens a New Window.doesn't exceed $80,000 as a single taxpayer or $160,000 as a married couple filing jointly. An income higher than these amounts doesn't necessarily preclude someone from benefiting from the AOTC. Rather, the total value of the credit will be reduced. However, single taxpayers with a MAGI exceeding $90,000, and couples filing jointly with a MAGI greater than $180,000, are not eligible.
Given that student loan debt has become a financial epidemic, many Americans should see whether this generous credit applies to them. Also, a portion of the credit is refundable: If it reduces your tax liability to $0 (or if you didn't owe anything to begin with), then you will be redunded 40% of any remaining credit amount up to $1,000.
For more information on the AOTC, check out this article Opens a New Window..
Residential Energy Tax CreditThis credit encourages two forms of saving. First, with help from the IRS, users can save up to $500 on their annual tax bill after installing energy-efficient devices like modernized water-heaters, insulated doors and windows, and even furnaces. Additionally, by installing energy-efficient solutions around the house, taxpayers will likely benefit from lower utility bills in the long run. The truly environmentally minded can earn a massive $7,500 credit when they buy a plug-in electric car. However, used cars don't qualify, and the credit you receive will depend on the capacity of the battery. This tax credit is non-refundable. Find more here Opens a New Window..
Child Care CreditThe Economic Policy Institute determined Opens a New Window.that the annual cost of full-time child care for a 4-year-old exceeds the cost of in-state public college tuition in 23 states. This statistic won't surprise parents who shell out an average of $196 on child center costs per week, per child. Simply put, the Child Care Credit is a must for most parents. Those who qualify can receive 20% to 35% of some or all dependent care costs. Your income determines how much you save.
Getting the full 35% requires that you earn no more than $15,000. Admittedly, this stipulation makes little sense given that an income of $15,000 makes paying for child care impossible. However, the percentage of savings you can take drops by 1% for every additional $2,000 earned as income. In short: You can save 20% on an income of $43,000 or more. You can claim that percentage of up to $3,000 in expenses paid for one qualifying person, or $6,000 for two, bringing the maximum value to $2,100 (35% x $6,000). Easy to understand? No. Worth researching? Absolutely. THis credit is non-refundable.
If an elderly postman can haul enough rocks to build his own castle, the average American can carve out enough time to research their tax credit eligibility. Many people will find that they can claim more than one of these credits and "stack" them -- and that's where the real savings start to accrue.
The $16,122 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies Opens a New Window..
Free QuickBooks Online subscription with
Mike McVay, Tax Accountant Blog
Certified QuickBooks ProAdvisor & Licensed Tax Accountant Pensacola, FL
©2022 this website and all of its sub domains are owned and operated by
Subscribe to our newsletter