Fortune 500 companies aren’t the only ones who enjoy tax breaks. Legislators have carved out significant deduction and credit opportunities for families, too.
Tax Credits and Deductions for the Middle Class: Retirement Savings
If you work for your income, as opposed to living off investment dividends, you can contribute to a traditional IRA if you’re not covered by a workplace retirement plan.
- Taxpayers can contribute to a retirement savings program and subsequently write off $5,500 a year ($6,500 for people 50 and over) or 100% of earned income, whichever is less.
- Married people filing jointly can deduct double the amount of one of the spouse’s earned income if they make enough to cover both contributions.
Income limits, however, apply. So work with an income tax lawyer for an optimal filing.
Tax Credits and Deductions for the Middle Class: Earned Income Tax Credit
[Aside Box] “What’s the Difference between a Tax Credit and a Tax Deduction? The difference between tax deductions and credits is that deductions reduce your taxable income; credits reduce the amount of taxes you owe, dollar for dollar.[End Aside Box]
EITC stands for Earned Income Tax Credit. A longstanding tax break for lower- and middle-income people, the EITC rewards people for working. Families benefit most from this tax credit because the claimable amount increases with the number of kids you have.
However, there are still provisions for single folks without kids. What’s great about the EITC is that if the amount for which you’re eligible exceeds the amount you owe, the government will cut you a refund check.
EITC calculations are complicated, though. To ensure you’re doing it correctly, and to avoid an audit, it’s best to sit down with a tax law attorney, if only once, to ensure proper reporting.
Tax Credits and Deductions for the Middle Class: Child Care Credits
If you have children under 12, you may qualify for a 20% to 35% credit, up to $3,000 for one child and $6,000 for two or more. Payments made to nannies, preschools, daycare, and day camp all count, but the percentage decreases in relation to increased income.
Families that earn over $50,000 may find that flexible spending accounts are the best cost-saving option.
Again, the best way to figure out the optimal tax plan that keeps the most amount of money in your pocket is to consult with a tax law attorney. One meeting could save you thousands of dollars for years and years to come.
Tax Credits and Deductions for the Middle Class: American Opportunity Credit and Lifetime Learning Credit
Single parents who make $80,000 or less or married couples filing jointly who make $160,000 or less may be eligible for the $2,500 American Opportunity Credit for college tuition and related expenses.
Like the EITC, if the credit exceeds your tax liability, up to 40% if refundable.
A similar tax credit for the middle class is the Lifetime Learning Credit. It allows you to claim 20% of $10,000-worth of educational expenses, up to $2,000. Only people who earn $65,000 (single) / $130,000 (joint) can qualify. Be aware, however, that you cannot claim both the Lifetime Learning Credit and the American Opportunity Credit for the same person in the same year.
Consult with a Tax Lawyer
The Gordon Law Group regularly works with middle-class families looking to save on taxes, and our clients walk away amazed at the deductions and credits for which they qualify. What we’ve listed here is only the tip of the iceberg. Give us a call. We’ll review your situation and walk you through the available tax savings opportunities specifically available to you.
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