Don’t you wish you could get a big tax refund? The average tax refund given to Americans in 2016 was $2,700, which is pretty decent. One way to earn tax refunds is through tax deductions. The other way is through tax credits.
Here’s a look at the most common tax credits that you can choose from
Did you know that you can take a credit of 30 percent on the cost of installing energy efficient energy equipment such as wind turbines, solar water heaters and geothermal heat pumps? This is certainly something you can take advantage of.
You can get a credit of up to $2,500 on American Opportunity Tax Credit for tax liability. So you can save money spent on eligible college expenses such as on student loans for yourself or your spouse. You can also access a Lifetime Learning Credit, which is about $2,000 per tax return. This is especially useful for under-graduate and graduate students.
Child and Dependent Care Credits
If you have a child under 13, you can get a credit for the childcare. This credit includes after school programs, day care, but does not include overnight or sleepover camps. The credit applies to even non-child dependents if they qualify. The amount of this credit is from 20 - 35 percent of up to $3,000 per child and up to $6,000 for 2 or more kids.
Here’s a look at the most common tax deductions to choose from
Sales and Local Tax Deduction:
You can now deduct your state income tax or state sales tax. This is easy enough. But if you live in a state where there is no sales tax, this is not available to you. Just choose the option that would get you the highest deduction.
If you have made any contributions to charity, however small, you can get deductions on them. It doesn’t matter how small the amount is, they quickly add up over time. If you have made any cash contributions, be sure to get a receipt for them. If your cash contribution is over $250, you will need to get a form of acknowledgement from the charity for the same. You can also deduct the cost of travel at 14 cents per mile, as well as on any parking or toll fees. Just remember to keep receipts for all tolls and parking and mileage.
Your Child’s Student Loan Interest:
You can now get a tax break on the student loan incurred by your child. The IRS treats this as money given by you to your child, who will have paid the debt in turn. You can deduct up to $2,500 of the student loan interest.
Reinvested dividends are not exactly a tax deduction, but they come close enough. So if you have made any mutual fund investments, the dividends are reconverted in extra shares. This way, you can increase your tax basis within the fund and pay less in terms of taxable capital gain when you sell your shares.