8 Individual Tax Breaks You Might Not Know About
A Tax Break is an advantage allowed by the government in which you are able to pay less in overall taxes. The goal of any taxpayer should be to reduce the total amount they pay in taxes so that they can invest that money back into their own lives the best way they see fit. Tax Breaks are not always obvious, so we have put together a list of the top 8 that you might not know about but could save you money.
Many people are now switching to more energy efficient appliances to try and help make a positive impact on the environment. The US government now offers tax credits to individuals who decide to clean up the environment by using energy efficient home appliances. You can get a tax credit of up to $500 by switching to more energy efficient stoves, heat pumps, central air conditioning, water boilers, fans, insulation, roofs, water heaters and many other household appliances. You can also get a tax credit, with no upper dollar limit, for geothermal heat pumps, small residential wind turbines and solar energy systems.
The federal government also rewards people who ditch fossil fuel vehicles for electric vehicles. You can now get a tax credit of up to $7,500 when you purchase an electric vehicle. Your taxable income must be at least $7,500 to receive the full tax credit. If you purchase a new electric vehicle and your taxable income only reaches $5,000, your tax credit will only be worth $5,000. Some states also have additional tax credits available on top of the federal tax credit. For example, Colorado offers an additional $6,000 tax credit for electric vehicle purchases. Imagine driving around in a brand new Tesla while saving thousands of dollars that you would have otherwise spent on a brand new gas powered car.
Higher education is a great way to invest in yourself and earn Tax Breaks at the same time. Higher education Tax Breaks can come in the form of tax credits, tax deductions and tax free savings plans. If you are pursuing a college degree, you may be eligible for the Lifetime Learning Credit of up to $2,000 per year if your income does not exceed $55,000 per year ($110,000 per year for married couples). If you do not meet the eligibility requirements for the Lifetime Learning Credit, you may be eligible to receive a tax credit of up to $2,500 per year through the American Opportunity Tax Credit if your income does not exceed $80,000 per year ($160,000 per year for married couples). You can also take advantage of tax deductions for things like tuition, books, room and board, and traveling expenses, which can reduce the amount of your taxable income by up to $4,000. Finally, you may qualify for an education savings plan where you can make tax free contributions to help you save for college related expenses.
Paying it forward is a great way to reduce your payments to the IRS. Donating to charity can give you huge Tax Breaks by reducing your taxable income by up to 50% in some cases. The IRS is very specific on the types of organizations you can donate to in order to receive these tax deductions. In most cases, it must be a United States organization. These organizations can be a community chest, corporation, trust, fund, foundation, church or other religious organization, war veterans' organization, nonprofit volunteer fire company, civil defense organization, domestic fraternal society or a nonprofit cemetery company. Deductions can also include things like the cost of ingredients for a dish you baked for a soup kitchen or traveling expenses related to charity work. Make sure to consider all expenses you incur while volunteering your time and services.
The job market is tough these days and job searches can go on for an extended period of time. If you are currently looking for work, you can rest a little easier knowing that you can also get tax deductions while you look. To deduct job hunting expenses, these expenses must be at least 2% of your gross annual income. These expenses include, but are not limited to, transportation expenses ($0.57 per mile driven plus parking fees and tolls), food and lodging expenses if your search takes you away from home, cab fares, employment agency fees, and the costs of printing resumes, business cards, and postage stamps.
Healthcare costs continue to rise at high rates and they can be very burdensome for individuals and families. Fortunately, there are numerous tax deductions you can take for medical related expenses. These deductions are especially useful for medical emergencies that are not covered by your insurance. The IRS allows you to deduct all medical expenses that exceed 10% of your gross annual income. You can deduct costs associated with preventive care, treatment, surgeries, vision care and dental care. You can also deduct costs associated with prescription medications and devices such as glasses, contacts, dentures and hearing aids. You are not allowed to deduct costs that will be reimbursed by your insurance or employer.
With interest rates near all-time lows, it has become increasingly difficult for low and average income people to put their money into a savings account and expect a decent return in the future. With the Saver’s Credit, it becomes much more profitable to save through the means of an IRA or 401(k). By saving through one of these accounts, you can earn a tax credit up to $1,000 per year. You can save for your future and get paid to do so. People who make $45,000 or less per year are eligible for this tax credit, which allows for a deductible of up to 50% for the first $2,000 you save through a retirement account. And, of course, 401(k)s and IRAs also have other tax advantages, most notably the ability to defer paying any tax until you withdraw from the account.
Owning a home can provide many Tax Breaks that you should be aware of. The biggest Tax Break for homeowners comes from deducting interest payments that you have made toward your mortgage. When you are in the early stages of home ownership, the bad news is that the majority of your mortgage payment will be in interest, not principal. The good news is that interest payments are 100% deductible up to $1 million. If you own multiple properties, you can deduct interest payments on those properties as well. Your second property does not have to be a house either. It can be a boat or an RV as long as it has cooking, sleeping and bathroom facilities. You should also be aware that you must spend at least 14 days at your second property, or more than 10% of the number of days you rent it out (whichever is longer) to be eligible for the deduction.