This article was last updated on October 24
It is almost that time of year again….tax season! We have compiled a list of six tax breaks for the 2016-2017 tax season that will lower your taxes due and increase the amount of your refund. The first topic is Earned Income Credit (EIC). The rules on this can be very confusing, but we are going to break it down to simple terms for you.
Earned Income Credit, do I qualify?
The first common misconception is that you need to have a child in order to qualify for this credit. That is incorrect, anyone who falls within certain income limits qualify to receive Earned Income Credit. The only exception is if you are married filing separately. If you use this as your filing status, you are not eligible for EIC.
For those taxpayers who file with the status married filing jointly, you and your spouse both need to have a social security number. You must have earned income from employment, self-employment, or a farm totaling at least $1. You cannot have investment income of more than $3400. Your combined income cannot exceed $20,430. Neither spouse can be claimed as a dependent on any other return. The maximum EIC credit you will receive is $506.
Taxpayers who file with the status single, head of household, or widowed can earn the EIC credit if they income is less than $14,880 without a qualifying child to claim. All other qualifications listed in previous paragraph are the same for this taxpayer group as well. The maximum EIC credit you will receive is also $506.
Taxpayers who file married filing jointly and meet all qualifications listed above will also receive additional EIC credit if you have qualifying children. If you have one qualifying child and your earned income is less than $44,846, you will receive a maximum EIC credit of $3,373. Alternately, if you have a filing status of single, head of household, or widowed and your earned income is less than $39,296, your maximum EIC credit will also be $3,373.
Married filing jointly taxpayers who meet all EIC qualifications and have two qualifying children, with a maximum income of $50,198, have a maximum EIC credit of $5,572. Single, head of household, and widowed taxpayers with two qualifying children with a maximum income of $44,648 also have the same maximum EIC credit of $5,572.
The final set of qualifications for EIC are those with three or more children. If you are married and file a joint return, a maximum income of $53,505, then your maximum EIC credit will be $6,269. If you fall into the single, head of household, or widowed categories, earning no more than $47,955, your maximum EIC credit will also be $6,269.
See more on past, current and upcoming EITC Tax Credits
Savers Tax Credit – How do I claim This?
Anyone who is over eighteen, who is not a full time student, and can’t be claimed on another person’s return are eligible to claim the Savers Tax Credit if they contribute to a traditional or Roth IRA; a 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan. You may even claim the credit for your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans. Funds that you roll over into another plan are not eligible for this credit, and the amount of credit can be reduced if you have received a distribution from any of the qualified plans.
If you use the Married Filing Joint status, you can claim up to $4000 of your IRA contributions based on the following income guidelines:
• 50% of your contribution if your income is less than $37,000
• 20% of your contribution if your income is between $37,001 and $40,000
• 10% of your contribution if your income is between $40,001 and $59,000
For example, if you and your spouse contributed $3,600 to an IRA plan listed above and your combined earned income is $36,000, then your Adjusted Gross Income (AGI) would be $32,400. You are eligible to claim $1,800 (50%) of your combined total of $3,600 IRA contribution.
In this example, if you and your spouse earned $39,999 combined income and contributed $4,000 to an IRA plan, you would be able to claim $800 as the Savers Credit, which is 20% of your combined contribution of $4,000.
The final Savers Credit opportunity for married filing jointly taxpayers is 10% of your combined contributions. Calculating this out, if you and your spouse earned combined income of $59,000 and contributed $3,900 to an IRA plan, you can claim $390 as your Savers Credit on your Income Tax Return.
If you have a filing status of Head of Household, you can claim up to $2000 of your IRA contributions based on the following income guidelines:
• 50% of your contribution if your income is less than $27,750
• 20% of your contribution if your income is between $27,751 and $30,000
• 10% of your contribution if your income is between $30,001 and $46,125
If you have a filing status of Single, Married Filing Separately, or Widower, you can also claim up to $2000 of your IRA contributions based on the following income guidelines:
• 50% of your contribution if your income is less than $18,500
• 20% of your contribution if your income is between $18,501 and $20,000
• 10% of your contribution if your income is between $20,001 and $30,750
Mortgage Interest, is it Worth Claiming?
If you have a mortgage loan, your lender will send you a Form 1098 in the mail no later than January 31, 2017. If you itemize deductions, you will want to wait for this form to arrive before you file your income tax return. Lenders are required to send Form 1098 to anyone who pays more than $600 in interest in a calendar year.
Box One on the form will include the amount of interest you paid to the lender in 2016. If you prepaid any amount toward 2017 interest payments, you may not include this amount as a deduction on your 2016 income tax return.
You may only claim the Mortgage Interest Credit on your return if it is a secured debt, meaning you provided collateral in order to obtain the debt. You also must itemize your deductions to receive the credit. In a majority of cases, the full amount of your mortgage interest can be claimed on your return. The following criteria identify home mortgage interest that can be fully deducted on your return:
• Mortgages that were taken out on or before October 13,1987 (grandfathered debt)
• Mortgages that were taken out after October 13,1987 to purchase, build, or make improvements to your home, but only if the total debt of this loan and your grandfathered debt totaled $1 million or less
• Home Equity loans that were taken out October 13,1987 that totaled less than $100,000 ($50,000 for those filing married filing separately) and the loan did not exceed the fair market value of your home reduced by first two criteria above
List of Charitable Contributions and their deduction benefit:
|Qualified Organization||% of Deductible Adjusted Gross Income (AGI)|
|State or US possession, if donation made exclusively for public purposes||0.5|
|Community Chest, Corporation, Trust, Fund, or Foundation, organized and created in the US and also organized and operated exclusively for charitable, religious, educational, scientific, literary purposes, or for the prevention of cruelty to children or animals||0.5|
|Church, Synagogue, or other religious organization||0.5|
|War veteran's organization or its post, auxiliary, trust, or foundation organized in the US or US possession||0.3|
|Non Profit Volunteer Fire Company||0.5|
|Civil defense organization created under federal, state or local law||0.5|
|Domestic fraternal society, operating under the lodge system, but only if donation is to be exclusively used for charitable purposes||0.3|
|Nonprofit cemetery company, if the funds are dedicated to the care of the entire cemetery, and not a particular lot or mausoleum crypt||0.3|
In general, if you itemize your deductions, you will have charitable contributions to deduct. You need to have a written record to claim these deductions; such as a letter from the organization that thanks your for your monetary donation, a duplicate check copy for the donation, or the bank statement which shows the amount given to the specific charity. Churches will send a statement at the end of the year that provide you with the amount of your contribution. If you pay in cash, you will need to keep the written statement tally yourself. If you are audited by the IRS, you will be required to show proof of all contributions made. It is best to make the donation by check or credit card, so that there is a statement showing transactions.
If you volunteer for one of these charitable organizations, you are not allowed to deduct for the value of your time while volunteering. However, you are able to deduct the mileage driven to and from the organization, so be sure to keep a mileage log. The 2016 standard mileage rate for charitable purposes is 14 cents per mile.
You may also non cash contributions made to any charitable organization, as long as you have a written receipt. You are only allowed to deduct the fair market value of the items donated. Items to consider here are:
• Food donations to food pantry (Postal Service also runs campaigns)
• Clothing Donations
• Books, DVDs, CDs, etc.
• Any item you donate for auction to charity
• Your previously used car
These are some awesome ways to lower your tax liability, but you must have written records to back up the deductions you claim.
Medical/Dental Expenses Deductions
You are only allowed to deduct your medical/dental expenses if the total paid is at least 10% of your Adjusted Gross Income (AGI) and you must itemize your deductions. However, if you or your spouse are 65 or older, your threshold is reduced to 7.5% to meet the deduction requirement. This deduction is the hardest for the majority of Americans to meet. You are allowed to deduct the following expenses:
|List of Medical Deductions|
|Abortion – done legally||Laboratory Fees||Fertility Enhancement||Therapy||Braille Books and Magazines||Nursing Home|
|Acupuncture||Lead Based Paint Removal||Guide Dog/Service Animal||Transplants||Breast Pump and Pumping Supplies||Nursing Services|
|Alcoholism – inpatient treatment & qualified mileage||Legal Fees to get authorized treatment for mental health||Health Institute||Public Transportation to get to medical appointments||Special Equipment installed in home for disabled||Operation/Surgery|
|Ambulance||Lifetime Care – Advanced Payments||HMO||Trips to another city for treatment||Special Equipment installed in car for disabled||Optometrist|
|Annual Physical Exam||Lodging||Hearing Aid||Vasectomy||Chiropractor||Osteopath|
|Artificial Limb||Long Term Care||Hospital Services||Weight Loss Program Fees – if medically diagnosed by doctor||Christian Science Practitioner||Oxygen|
|Artificial Teeth||Meals||Health Coverage Tax Credit||Wheelchair||Contact Lenses||Physical Exam|
|Bandages||Medical Conferences||Employer Sponsored Health Insurance, only if it is included on your W2||Wig||Crutches||Pregnancy Test Kit|
|Birth Control Pills||Medical Information Plan||Medicare A,B, and D Premiums||Xrays||Dental Treatment||Psychiatric Care|
|Body Scan||Medicines||Prepaid Insurance Premiums||Special Home to care for Disabled Person||Diagnostic Devices||Psychoanalysis|
|Eye Exam||Sterilization||Eye Surgery||Sub Captioning device on TV for the deaf||Disabled Dependent Care Expenses||Psychologist|
|Eyeglasses||Stop Smoking Programs||Drug Addiction – inpatient treatment||Special Education|
You may also deduct mileage in your own car that is used for medical purposes. The medical standard mileage rate for 2016 is 19 cents per mile. You cannot claim expenses that were paid by a Health Savings Account (HSA).
Alimony Payments, the Gem of the Credits
If a court of law requires you to may alimony payments, you are eligible to claim the expense as a deduction on your income tax return. To be eligible to claim the credit, you must not file a joint return with your spouse or former spouse. You must pay in cash, check, or money order. The payment is received by your spouse or former spouse. The divorce decree or separation agreement does not say that the payment is not alimony. If legally separated, you and your spouse cannot live in the same household. You have no liability to make the payment after the death of the spouse or former spouse. The payment is not treated as child support or property settlement.
And there you have it, 6 Tax Breaks for 2016! I hope you enjoyed the article presented and found this information useful. Check back often for more articles relating to income tax breaks. Have a great day, thank you for reading!