It's tax season and chances are you're confused. We all are. The federal tax code is more than 70,000 pages or 3.7 million words long. Every year the tax code changes--it's nearly impossible to know what we owe and what we don't owe to the IRS. That's why every year we spend over $27.7 billion on services that help us file our taxes.
It's important you understand tax deductions and credits--these are ways you can save money on your tax forms. Specifically, deductions are amounts of income that you can exclude from your taxable income, while credits are essentially refunds on your tax bill. Here are five tax deductions and credits that you may not know about:
1. Students We might not be able to offer you any good news about rising tuition costs, but we can point you to ways you can take advantage of tax benefits for college students. There are many tax advantages you should be taking be aware of if you're a student:
- American Opportunity Tax Credit--Credit of up to $2,500 per year for the first four years of college.
- Lifetime Learning Credit--20 percent credit of the first $10,000 spent annually on tuition.
- Student-Loan Interest Deduction--The interest you're pay off on your student-related expenses (tuition, room and board, etc.) can be tax deductible.
There are a number of tax benefits for parents, including the personal exemption, the child care tax credit and the earned income tax credit. But you might not be aware that relatives may qualify as dependents, depending on their income and how much money you spend in support.
3. Hard Workers
If you have two or more jobs, you may be overlooking how much money in Social Security taxes is being taken out of your paycheck. All of your employers are required to withhold Social Security tax from your income, despite how much other employers are withholding. This can often lead to employees paying a combined Social Security tax that exceeds the maximum. If you're overpaying in Social Security taxes, you must claim a refund on your tax return.
4. Bob Vila Types
You may still be paying off the bills for your home's new windows and luxurious skylight, but there are tax credits to claim that you might not be aware of. Installing new windows, doors, and water heating pumps can earn you up to $500. Additionally, if you're looking to make your house more "green," be sure to take advantage of tax credits for energy-saving improvements, like installing solar panels, wind turbines and insulation.
5. Job Hunters
Millions of Americans are on the hunt for a job and might not know that many costs associated with finding a job are tax-deductible. These job-search expenses, according to Kiplinger, include, cab fares, food, lodging, employment agency fees and printing costs (resumes, business cards, etc).