Top 12 Tax Write-offs

There are a myriad of tax deductions and credits scattered throughout the tax code, and each one comes with their own set of rules and limitations. Below is a list of 12 write-offs to keep in mind when having your taxes prepared.

1. Earned Income Tax Credit

The Earned Income Tax Credit is a benefit for working people, with low to moderate income. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. The EITC reduces the amount of tax you owe and may give you a refund.

The amount of the credit varies based on the amount of earned income you have, your filing status, and the number of qualifying children claimed. If you have no qualifying children the maximum credit amount is $529, however the credit can go as high as $6,557 with three or more qualifying children.

2. Child Tax Credit & Other Dependent Credit

You may claim the Child Tax Credit if you have a qualifying child under the age of 17 and meet other qualifications. The maximum amount of the credit is $2,000 per child. If the credit reduces your tax to zero, up to $1,400 per child may be refundable. The IRS definition of child also includes stepchildren, foster children, siblings, step-siblings, half-siblings, grandchildren, nieces/nephews, or adopted children.

Dependents who can’t be claimed for the Child Tax Credit may still qualify for the Credit for Other Dependents. This is a non-refundable tax credit of up to $500 per qualifying person. The qualifying dependent must be a U.S. citizen, national, or resident alien.

Both credits begin to phase out at $200,000 of modified adjusted gross income ($400,000 if married joint).

3. Child and Dependent Care Credit

You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. The amount of the credit is a percentage of the amount of related expenses you paid to a care provider. The credit percentage decreases as your income rises but does not go below 20 percent.

A qualifying individual is your dependent child who was under the age of 13 when the care was provided or another individual, including your spouse, who was physically or mentally incapable of self care and lived with your for more than half of the year. The care may be provided in the household or outside the household.

4. American Opportunity Tax Credit

The AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. To be eligible, a student must be enrolled at least half time during one academic period and pursuing a degree or other recognized education credential.

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses and 25 percent of the next $2,000 of expenses. Even if the credit pays your tax down to zero, you can have 40 percent of any remaining credit (up to $1,000) refunded to you.

Qualified expenses include tuition and fees required for enrollment or attendance at an eligible education institution. Expenses for books, supplies and equipment needed for a course of study are also included in qualified education expenses whether or not the materials are purchased from the school.

5. Lifetime Learning Credit

While the AOTC is for the first four years of college, the Lifetime Learning Credit can be claimed an unlimited number of times. To claim this credit, a student must be taking courses to get a degree or other recognized credential or to get or improve job skills.

The amount of the credit is 20 percent of the first $10,000 of qualified education expenses or a maximum of $2,000 per return. Unlike the AOTC, no portion of the Lifetime Learning Credit is refundable.

To qualify as expenses all tuition, fees, books, supplies, and equipment must be paid to the institution as a condition of enrollment or attendance.

You can't claim the credit if your MAGI is more than $68,000 ($136,000 for married joint) and it's slowly being phased out for those who make between $58,000 and $68,000 (116,000 and $136,000 if married joint).

6. Saver's Credit

You may qualify for the savers credit by making eligible contributions to your IRA or employer-sponsored retirement plan, such as a 401K.

You are eligible for the credit if you are age 18 or older, not a full-time student, and not claimed as a dependent on another person’s return.

The amount of the credit is 50%, 20%, or 10% of your retirement plan contributions depending on your adjusted gross income and filing status.The maximum contribution amount that may qualify for the credit is $2,000($4,000 if married joint), making the maximum credit $1,000($2,000 married joint).

7. Adoption tax credit

The adoption tax credit is for qualified adoption expenses paid to adopt an eligible child. The credit covers adoption fees, court costs, attorney fees, traveling expenses and other expenses that are directly related to the adoption. As of 2019, the maximum dollar amount is $14,080 per child. The credit is nonrefundable, which means it’s limited to your tax liability for the year. However, any credit in excess of your tax liability may be carried forward for up to five years.

The credit amount is reduced when your income exceeds $211,160 and is completely phased out when your income exceeds $251,160.

8. Residential Energy Credit

You may be able to claim this credit if you made energy saving improvements to your home in 2019.

The credit includes:

· Energy-efficient doors, windows, and skylights

· Certain asphalt or metal roofs

· Insulation material

· Energy-efficient heating and HVAC systems

· Water heaters

· Biomass stoves

Qualifying solar electric property and solar water heaters are also included.

As of 2019, the credit has a lifetime limit of $500, but different improvements carry different weights to earn the credit.

9. Student Loan Interest Deduction

If you paid interest on a qualifying student loan for you, your spouse or another dependent, you may qualify for the tax credit. You can claim the deduction as an adjustment to your income, so you don’t need to itemize your deductions. You'll be able to deduct the lesser of $2,500 or the actual amount of interest you paid during the year.

The amount of the deduction is gradually reduced once income reaches $70,000($140,000 if married joint) and is completely phased out when income exceeds $85,000 ($170,000 if married joint).

10. Health Savings Account contribution

If you are covered by a High Deductible Health Plan then you may be eligible to contribute to a Health Savings Account. Contributions made by you or your employer to an HSA through payroll are not subject to federal income tax (similar to 401K contributions). Contributions made by you to an HSA outside of payroll are deductible on your tax return.

Maximum contribution limits vary based on your age, the date you became eligible, and the type of high-deductible health plan you have.

Distributions from an HSA are tax free so long as the money is used to pay qualified medical expenses. If the money is not used to pay for qualified medical expenses then the distributions will be taxable. There is also a 20% penalty for non-qualified distributions unless you are over age 65 or disabled.

11. Medical and Dental Expenses

If you itemize your deductions for a taxable year on Schedule A, you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents. You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income.

Deductible expenses include but are not limited to:

· Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, and nontraditional medical practitioners.

· Payments for inpatient hospital care, residential nursing home care, and acupuncture treatments.

· Treatment for alcohol, drug addiction, smoking-cessation programs and prescription drugs for nicotine withdrawal and related addiction needs.

· Payments to participate in a weight-loss program for a specific disease or diseases diagnosed by a physician, including obesity.

· Payments for insulin, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, guide dogs and other service animals.

Funeral expenses, nonprescription medicines, and most cosmetic surgery can't be deducted.

12. Student Loan Interest Deduction

If you paid interest on a qualifying student loan for you, your spouse or another dependent, you may qualify for the tax credit. You can claim the deduction as an adjustment to your income, so you don’t need to itemize your deductions. You'll be able to deduct the lesser of $2,500 or the actual amount of interest you paid during the year.

The amount of the deduction is gradually reduced once income reaches $70,000($140,000 if married joint) and is completely phased out when income exceeds $85,000 ($170,000 if married joint).