It’s officially that time of year again: tax season! April 15th is the deadline for filing your taxes to find out if you own Uncle Sam money. With any luck, he may owe you some, and we’re trying to tip the scales in your favor by sharing three tax credits that are most often overlooked.
Saver’s Tax Credit
What is it?
This is a tax credit that is aimed at encouraging low income folks to contribute to some sort of a retirement fund. This credit applies to personal retirement savings funds like Traditional and Roth IRA’s but also to employment sponsored plans like your 401k. By contributing to one of these plans, you can claim part of that contribution as a tax credit.
Who qualifies?
To qualify for the saver’s tax credit you need to be at least 18 years old, and not a full time student. A full time student is defined as anyone attending a college or university for at least five months of the year. Essentially, if you qualify as someone else’s dependent you won’t qualify for this tax credit.
What do you get?
There are various levels for this tax credit, but the max credit you can apply is $2,000. You’re tax credit is based on your adjusted gross income (AGI). If you make–
- less than $27,750 per year or your household makes less than $37,000 the tax credit is 50% of the contribution
- between $27,751 – $30,000 or if your household makes between $37,001 – $40,000 the tax credit is 20% of your contribution
- between $30,001 – $46,125 or if your household makes between $40,001 – $61,500 then the tax credit is 10% of the contribution
For example, let’s say you make $22,400 and you manage to save $4,000 in a Roth IRA, your tax credit would be $2,000. If you qualify, make sure you fill out the appropriate claim form during tax time.
Lifetime Learning Credit
What is it?
This is a credit directly aimed helping students with the cost of education, or helping the parents who are paying for their children to attend school. You or your parents can claim up to $2,000 for direct education expenses. This includes tuition but doesn’t include keggers.
Who qualifies?
You or your parents can claim the tax credit as long as you are an eligible student and you went to a qualified educational higher education institution. Essentially, the government wants to make sure they’re not giving you a tax credit to attend the ‘School of Building Bike Jumps’. For your parents to claim the credit, you must meet the requirement of an eligible dependent.
What do you get?
You can claim up to $2,000 but this amount is greatly reduced when you start to earn more income, so if you plan on being a big earner once you graduate, it is best to claim this credit early. For this credit, you are entitled to 20% of the first $10,000 spent on education, but this number drops once you have annual income above $55,000.
Learn more about the Lifetime Learning Credit here and be sure to complete Form 8863 and submit it with your Form 1040 or 1040A.
Non business Energy Property Credit
What is it?
This tax credit is in place to encourage homeowners to take steps to increase the energy efficiency of their homes. Recently the government has taken a few steps to encourage the energy efficiency of everything. A full breakdown of all of the energy credits can be found online.
Who qualifies?
You qualify as long as you can show that you took steps to improve the energy efficiency of your home. Items typically included are things like new exterior windows and doors and certain roofs, as well as efficient heating systems.
What do you get?
A credit of 10% of dollars spent can be applied up to $500. There is an interesting stipulation that you should keep in mind – only $200 of the credit can be claimed for new windows, but energy efficient doors can also be claimed outside of this. Use Form 5695 to claim these credits.
There you have it! Three tax credits that you may not have known about. If you’re able to claim all three of them, they turn into a maximum tax credit of $4,500. Dollar for dollar, this could be the most you’ve been paid to read a blog post! Now go out and do your duty: share this tax savvy post with your friends to help others maximize their dollars at tax time.