Don’t Miss these Tax Credit Opportunities
Tax deductions aren’t the only things to consider when looking for ways to reduce your tax bill. There are a number of tax credits that you may be able to claim. A tax credit reduces your tax liability dollar for dollar (and, in some instances, may be fully or partially “refundable” to the extent of any excess credit).
Child-related Credits
Parents of children under age 17 may claim a child tax credit of up to $1,000 per qualified child. The child tax credit is phased out for higher income taxpayers.
A different credit of up to $13,400 is available for the payment of qualified adoption expenses, such as adoption fees, attorney fees, and court costs. The credit is phased out at certain income levels, and there are certain restrictions as to the tax year in which the credit is available.
Look into claiming the child and dependent care credit if you pay for the care of a child under age 13 while you work. It’s available for 20% (or more) of up to $3,000 of qualifying expenses ($6,000 for two or more dependents). This credit isn’t confined to child care expenses — it may also be applicable for the care of a disabled spouse or another adult dependent.
Higher Education Credits
The American Opportunity credit can be as much as $2,500 annually (per student) for the payment of tuition and related expenses for the first four years of college. A different credit — known as the Lifetime Learning credit — is available for undergraduate or graduate tuition and for job training courses (maximum credit of $2,000 per tax return). You’re not allowed to claim both credits for the same student’s expenses, and both credits are subject to income-based phaseouts and other requirements.
Sometimes Overlooked
One credit that taxpayers sometimes miss is the credit for excess Social Security taxwithheld. If you work for two or more employers and your combined wages total more than the Social Security taxable wage base ($118,500 in 2015), too much Social Security tax will be withheld from your pay. You can claim the excess as a credit against your income tax.
The alternative minimum tax (AMT) credit is another credit that’s easy to overlook. If you paid the AMT last year, you may be able to take a credit for at least some of the AMT you paid. The credit is available only for AMT paid with respect to certain “deferral preference” items, such as the adjustment required when incentive stock options are exercised.
We can provide more details regarding these and other tax credits that may be available to you or your business, so give us a call today.
There are a Variety of Steps You Can Take to Benefit Your Next Tax Year
The tax year is pretty much a wrap. There’s not too much individual taxpayers can do to change the outcome. But there are a variety of steps you can take this year that will affect how your next year’s tax year plays out.
Review Tax Payments
If you customarily get a healthy tax refund, you may want to rethink how much is being withheld from your pay. Your withholding amount is based on the Form W-4 you filed with your employer. If you file a new W-4 that results in lower withholding, your take-home pay will increase. But don’t go overboard. You’ll want to make sure you’re having enough withheld to avoid underpayment penalties. Similarly, self-employed individuals and other taxpayers who make quarterly estimated tax payments should be careful to pay the appropriate amounts in a timely manner.
Make the Most of Tax-favored Accounts
Contribute as much as possible (up to the federal limit) to your 401(k), 403(b), 457, individual retirement account (IRA), or other retirement plan. Also, take full advantage of any other tax-favored accounts you’re eligible for, such as a health savings account (HSA) or a flexible spending account (FSA). Managed properly, these accounts can provide considerable tax savings.
Nurture Your Future
If you plan to change jobs and take a distribution from your employer’s tax-deferred retirement plan, be careful. It’s usually best to have your plan trustee directly transfer the funds to the trustee of your new employer’s qualified plan or to the institution that has your IRA. Although you could request a cash distribution and do the rollover yourself, required income-tax withholding can complicate the transaction. If you make a mistake and don’t roll over the full amount of the taxable distribution within 60 days, you’ll owe income taxes — and perhaps a 10% early withdrawal penalty as well.
For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.
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