3 tax breaks that can cut your taxes by thousands

3 tax breaks that can cut your taxes by thousands
There are plenty of tax breaks that you can use to reduce your tax bill, but with tax reform efforts having just made it through Congress, a lot is changing in 2018.

But for the 2017 tax returns that you need to file by April 17, the following three tax breaks still apply and can save you thousands of dollars if you qualify.

Tax break

# of taxpayers claiming 

Avg. amount of credit/deduction

Earned income tax credit

28.1 million

$2,440

Child tax credit (includes additional child tax credit)

22.4 million

$2,399

Deduction for state and local taxes paid

44.2 million

$12,514

1. Earned income tax credit

The earned income tax credit is available to low- and middle-income workers, with specific income limits applying to taxpayers depending on the size of their families. Income limits for single filers ranged from just over $15,000 for those with no children to more than $48,000 for those with three or more children. Married filers with incomes of up to nearly $54,000 can claim the credit if they have the maximum family size under the provision

Those without children can claim a maximum credit of up to $510, while larger families with three or more children could see a much larger credit of more than $6,300. Those who claim the credit get an average of $2,445 back from the federal government, according to the latest data from the IRS.

Even if you don’t generally owe tax, the earned income tax credit is one of the few tax breaks that can give you a refund check. As a refundable credit, the earned income tax credit doesn’t need tax liability to offset in order to produce a meaningful benefit. Yet as many as 20% of eligible taxpayers don’t claim the credit each year, even though they’re entitled to do so.

2. Child tax credit

Those with families can also take advantage of the child tax credit. This is one of the credits that got a big boost in tax reform, with amounts for the 2018 tax year doubling to $2,000 per child.

For the 2017 tax returns you’re about to file, however, the prior-law amount of $1,000 per child applies. In order to qualify, a child must be 16 or younger at the end of the tax year and be a dependent who’s related to you. You need to live with the child for more than half the year, and you must provide at least half of the child’s financial support in order to claim the credit.

The child tax credit comes in two parts. The primary credit is non-refundable, requiring that you owe tax in order to benefit from it. However, the additional child tax credit is a refundable credit. If you have a minimum of $3,000 of earned income, then the additional child tax credit can boost your refund, even if you have no remaining tax liability. However, current income limits of $75,000 for singles and $110,000 for joint filers apply to the 2017 credit, with credits phasing out above those initial levels.

3. Deduction for state and local taxes

Unlike the two provisions above, the deduction for state and local taxes isn’t a credit. However, with a much larger amount at stake, the typical deduction of $12,514 amounts to tax savings of between $1,250 and $5,000, depending on your tax bracket. The deduction is available in 2017 for an unlimited amount of payments for property taxes, as well as your choice of either state and local income tax or sales tax. To claim this break, you have to itemize your deductions on your tax return.

Starting in 2018, there’ll be a $10,000 limitation on what you can deduct for state and local taxes. Although that will affect even the average American, those who are in particularly high-tax areas of the country could see even greater impacts going forward. That’s why many people took steps to boost the amount they paid on such taxes during 2017 so that they could take full advantage one last time on their 2017 returns.

Use what the IRS gives you

When you can use a tax break, you should. These three provisions don’t help everyone, but if they’re available to you, then it pays to learn more and find out how to claim every penny you can.

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Source by usatoday..

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