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Contrary to what you might hear on the news, you don’t have to be super-wealthy to qualify for some sweet tax breaks on your income taxes. There are actually plenty of deductions and credits to go around for all types of taxpayers.
Most parents are familiar with the $1,000 child tax credit they can claim even if they don’t itemize on their tax return. Parents who pay out-of-pocket for childcare can also qualify for a tax credit of up to 35% of those costs up to $3,000 for one child and $6,000 for two or more children. A family with a $40,000 income and a $3,000 yearly childcare bill would receive a credit for $600.
College Students or Parents of College Students
Kids don’t stop costing money when they graduate from daycare. With the American Opportunity tax credit, you can receive a credit for 100% of the first $2,000 of your eligible college education expenses and 25% of the next $2,000. Almost half of American college students have saved an average of $700 on college expenses by taking advantage of tax credits like this.
If you itemize your taxes and have a mortgage, you can deduct 100% of the mortgage interest you paid last year. This works out to an average deduction of $524 for homeowners with incomes between $40,000–75,000. You could also deduct your property taxes, saving taxpayers in the 25% tax bracket about $300 based on the national average property tax bill of $1,180. Although Dave doesn’t recommend having a loan that requires private mortgage insurance (PMI), you can deduct those premiums as well. For a taxpayer with an average income, that’s a deduction of $375 on PMI premiums of $1,500 a year.
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If you were one of the millions of unemployed Americans on the lookout for a job last year, you can deduct the costs of your search. To do so, you must file an itemized return, and your expenses have to exceed 2% of your income. Job seekers with a $40,000 income who spent $2,000 looking for a job last year could deduct an additional $300 on their tax return. The deduction does not apply to costs related to finding your first job. Eligible expenses include:
- Hotel and meals if you stayed overnight for an interview or to place an application
- Employment agency fees
Ask an Expert Which Deduction You Qualify For
Don’t miss out on any deductions or credits you may qualify for this year. Work with an experienced tax professional who will help you keep the money you’ve earned.