Uncovering Lesser-Known Tax Credits and Deductions
Tax season can be a stressful time for many individuals and families. However, there is good news — there are several tax credits and deductions that often go unnoticed but can significantly reduce your tax liability or increase your refund. In this article, we will uncover some lesser-known tax credits and deductions that you may not be aware of.
1. Lifetime Learning Credit
Most people are familiar with the American Opportunity Credit, which provides a credit for qualified education expenses incurred during the first four years of post-secondary education. However, fewer taxpayers are aware of the Lifetime Learning Credit. This credit allows you to claim up to 20% of the first $10,000 spent on eligible educational expenses throughout your lifetime.
The Lifetime Learning Credit is particularly beneficial for those who have already completed four years of higher education or are pursuing courses to acquire new skills or improve their job prospects. The credit is non-refundable but can still help lower your overall tax bill significantly.
2. Residential Energy Efficient Property Credit
Are you considering making energy-efficient upgrades to your home? If so, you may qualify for the Residential Energy Efficient Property Credit. This credit applies to qualifying solar electric systems, solar water heaters, geothermal heat pumps, small wind turbines, and fuel cell property installed in your primary residence.
The credit is 30% of the cost of equipment installation (including labor), subject to certain limitations depending on each type of system. While this credit has been extended through 2023 for most types of property listed above (except fuel cells), it’s essential to check if there have been any recent updates regarding eligibility requirements before claiming it on your tax return.
3. Adoption Tax Credit
If you’ve recently adopted a child or plan to do so in the near future, don’t overlook the Adoption Tax Credit as it could provide significant financial relief during this life-changing event. For qualified adoption expenses, such as adoption fees, court costs, attorney fees, and travel expenses related to the adoption process, you may be eligible for a non-refundable tax credit of up to $14,440 per child.
It’s important to note that this credit is subject to income limitations and begins phasing out once your modified adjusted gross income reaches a certain threshold. However, even if you don’t qualify for the full amount of the credit in one year, any unused portion can be carried forward for up to five years.
4. Elderly or Disabled Tax Credit
If you are 65 years or older or permanently disabled and have limited income and resources, you might be eligible for the Elderly or Disabled Tax Credit (also known as the Credit for the Elderly or Disabled). This credit provides assistance to those who meet specific criteria by reducing their tax liability on a dollar-for-dollar basis.
To qualify, your total income must fall below certain thresholds determined by your filing status. The IRS offers an interactive tool called “Am I Eligible To Claim The Credit For The Elderly Or Disabled?” that can help determine whether you’re eligible and calculate your potential credit amount.
5. Health Insurance Premiums Deduction
Self-employed individuals often face high health insurance premiums compared to those who receive coverage through their employers. However, there is good news: self-employed individuals may be able to deduct their health insurance premiums when calculating their self-employment tax liability.
To qualify for this deduction:
– You must not have been eligible for employer-sponsored health coverage.
– You must not be able to claim eligibility under another person’s employer-sponsored plan (such as being covered under a spouse’s plan).
– Your net profit from self-employment must exceed any deduction taken for self-employment taxes.
This deduction can result in significant savings since it reduces both your taxable income and your self-employment tax liability.
6. Home Office Deduction
With the rise of remote work, more individuals are working from home than ever before. If you use a portion of your home exclusively for business purposes, you may be eligible to claim a Home Office Deduction.
To qualify for this deduction, the space in your home must be used regularly and exclusively as your principal place of business or where you meet with clients or customers. The IRS provides two methods to calculate this deduction: the simplified method (which allows a standard rate per square foot) and the regular method (which requires detailed calculations based on actual expenses).
It’s crucial to ensure that you meet all requirements and maintain proper documentation to support your claim if selected for an audit.
7. Student Loan Interest Deduction
If you’re repaying student loans, don’t forget about the Student Loan Interest Deduction. This deduction allows you to deduct up to $2,500 in interest payments made on qualified student loans each year.
To qualify for this deduction:
– Your modified adjusted gross income (MAGI) should fall below certain limits.
– You must not be claimed as a dependent on someone else’s tax return.
– The loan must have been taken out solely for educational purposes.
This deduction is especially valuable since it is available even if you don’t itemize deductions on Schedule A of Form 1040.
8. Moving Expenses Deduction
While moving expenses were previously deductible when relocating due to work-related reasons, recent changes under the Tax Cuts and Jobs Act have limited eligibility only to active-duty military personnel who move due to military orders.
However, if you are self-employed or run a small business and relocate more than 50 miles away from your previous location, there might still be some opportunities for deductions related to moving expenses associated with your business activities. It’s essential to consult with a tax professional regarding specific circumstances and eligibility requirements before claiming any deductions in this category.
Conclusion
By taking advantage of these lesser-known tax credits and deductions, you can potentially reduce your tax liability or increase your refund. Remember to consult with a qualified tax professional or use reliable tax software to navigate the complexities of the IRS rules and ensure that you are accurately claiming all eligible credits and deductions.
While this article covers several lesser-known options, it’s essential to stay informed about any changes in tax laws that may impact eligibility requirements or credit amounts. With proper planning and understanding of available options, you can make the most of these opportunities for potential savings during tax season.