Give yourself a tax break

By State Farm™

Most people like to save money  —especially at tax time. Reducing your tax burden can put more money in your pocket and help empower you to invest more in your financial future. Over the past decades, many federal tax incentive programs have been created to encourage families to own homes, invest in their children’s educations, and save for retirement, among others. Taking advantage of these tax credits and deductions can help you make smarter monetary decisions in the future.

Lower Your Taxes

Lowering your tax burden doesn’t have to be painful. There are many ways to help reduce your tax payments, including:

• Maximizing mortgage deductions. If you own a home, you can generally deduct all or some of your home mortgage interest on your federal income tax return, subject to mortgage debt limits and subject to itemized deduction limits tied to income levels.

• Itemizing health care expenses. If you’re self-employed, you can generally claim 100% of health insurance costs for you, your spouse, and dependents, provided that you itemize the deductions. If you are a salaried employee, you can generally write off outstanding medical expenses (healthcare costs not covered by your employer’s health plan) that exceed 10% of your adjusted gross income.

• Setting up a Flexible Spending Account (FSA) or a Health Savings Account (HSA). Some companies offer FSAs, which generally allow you to set aside $2,500 for 2013 (depending on the FSA type) in pretax funds for future out-of-pocket medical costs. If your employer offers an HSA combined with a high-deductible health plan, you can set aside pretax funds for your medical costs. If you are self-employed and set up an HSA combined with a high-deductible health plan, your contributions to the HSA are generally tax deductible.

• Inventorying business deductions. If you own a business, you can take advantage of the depreciation deductions for property and equipment allowed in Section 179 of the Internal Revenue Code. You can deduct depreciable business property, business equipment, and vehicles as an expense within yearly cost limitations.

• Deducting educational expenses. If you or a family member is enrolled in college courses, the tuition and books maybe deductible, up to $4,000 per calendar year, depending on circumstances.

• Increasing your 401(k) or IRA contributions. Any pre-tax money you add to your 401(k) or traditional Individual Retirement Account (IRA) may lower your annual taxable income (providing you are under the phase-out threshold), which is up to $5,500 in 2013, if you are over age 50. You can contribute (as a payroll deduction at work or a set-aside, if self-employed) up to $17,500 to a 401(k) in 2013.

• Selling losing investments. Net losses to underperforming investments (after penalties) can generally be deducted, up to $3,000.

• Deducting alimony. Alimony payments are generally tax-deductible.

• Itemizing your donations. Giving to charitable organizations can generally be written off if you itemize your donations. Be sure to keep receipts that include the name of the charity, the date of the contribution, and the amount.

Note: You can’t take the standard deductions on your federal tax form if you itemize deductions. There are also limits on your ability to take itemized deductions based on your income levels.

Take Tax Credits
Where You Can

Tax credits let you reduce your annual taxes. Some common tax credits are:

• Child Tax Credit. You can receive a federal tax credit (up to $1,000) for each child under age 17, subject to income levels.

• Child and Dependent Care Credit. You may be able to write off some of your child care expenses for your children age 12 or younger as long as the care was provided to allow you or your spouse to work or look for work, subject to dollar and earned income limitations.

• Earned Income Credit. Low- to moderate-income individuals or families supporting young children are generally eligible.

• Credit for the Elderly or Disabled. You can qualify for this tax credit if you are age 65 or older, or retired on disability, and permanently and totally disabled at retirement.

• Saver’s Credit. You can generally receive a tax credit (up to $1,000, if filing single or $2,000, if filing jointly) for contributing to an IRA or 401(k) if you’re single and earn up to $29,500, or if you’re married filing jointly and earn up to $59,000.

• Education saving accounts. A Section 529 plan or Coverdell Education Savings Account (ESA) allows you to invest in your child’s future education expenditures. A 529 plan lets you create a savings account to pre-pay your child’s college tuition. There is no age limit on 529 plans, and you can contribute up to the applicable state 529 plan limit. A Coverdell ESA generally allows you to invest $2,000 per child, per year (until the child’s 18th birthday) to pay for college tuition, books, supplies, and other qualified education expenses, as well as qualified elementary and secondary education expenses. Funds from 529 plans and Coverdell ESAs can be withdrawn free of federal income tax as long as the money is spent for qualified withdrawal purposes, but there is a 10% penalty for unqualified withdrawals.

• American Opportunity Tax Credit. This tax credit is available to households earning $80,000 or less ($160,000 or less if filing jointly) and gradually phased out as income exceeds these limits. You can take a credit of up to $2,500 a year for college expenses, including tuition, fees, course-related books, and supplies.

• Lifetime Learning Credit. A 20% educational tax credit is available for the first $10,000 (up to $2,000 annually) spent on qualified tuition and related expenses for students in the taxpayer’s family. The credit is phased out based on a taxpayer’s gross income. You can’t claim this credit if you are already claiming the American Opportunity Tax Credit for the same individual.

Previous Story

The four-year pep talk

Next Story

Kiss and make-up

Latest from Uncategorized

Prep Basketball Roundup

Swamp Foxes finish sweep of Eagles LowcoSports.com Beaufort High’s boys made a second-half charge but couldn’t

A Beacon in the storm

By Dru Clements What seems like light years ago, during the 2016 Republican primaries, 50 Republican,