Many Americans find it painful to fork over a large chunk of their income to taxes year after year. If you're looking to keep more of your money away from the Internal Revenue Service in 2017, here are a few tax breaks you won't want to miss.
1. Retirement plan contributions
Putting money into a retirement account won't just help you secure a financially stable future; it will also lower your taxes up front. If you have access to a 401(k) plan at work, you can contribute up to $18,000 in 2017. If you're 50 or older in 2017, that limit increases to $24,000. If your employer doesn't offer a 401(k), you can open an IRA and reap similar tax benefits. The annual IRA contribution limit for 2017 is $5,500 if you're under 50, or $6,500 if you're 50 or older. Any money you put into either account goes in on a pre-tax basis, so if you earn $60,000 a year but put $10,000 into a 401(k), you'll only pay taxes on $50,000 of income.
2. Homeowner deductions
If you own a home, you may be eligible for a number of large tax breaks in 2017. First, you can deduct any interest you're paying on your mortgage as long as your loan balance doesn't exceed $500,000 if you're a single tax filer or $1 million if you're married and filing jointly. Next, you can take a deduction for property taxes, which, depending on where you live, could be a pretty big number. Furthermore, if you're freelance or self-employed and conduct business out of your home, you can save money on your taxes by taking a home office deduction. To do so, just add up what you spend on electricity, utilities, homeowners' insurance, and other such expenses that come with living in your home and prorate them based on the size of your office relative to the rest of your living space.
3. Federal tax credits
If you're eligible for a major tax credit in 2017, it could shave thousands of dollars off your total tax bill. Some of the most rewarding tax credits out there include:
- The Earned Income Tax Credit. Low-income families could get up to $6,318 in 2017 thanks to the Earned Income Tax Credit, or EITC. Eligibility is based on how much you earn and the number of qualifying children in your household. Better yet, the EITC is refundable, so if it reduces your tax liability to below $0, you'll actually get a check for the difference.
- The Child Tax Credit. With the Child Tax Credit, you may be able to reduce your taxes by up to $1,000 for every qualifying child in your household under the age of 17. Though there are income limits, if you're eligible for the credit, you can claim it the year your first child is born, even if that doesn't happen until Dec. 31.
- The American Opportunity Tax Credit. If you're a student or are paying for a child to attend college, you may be eligible for the American Opportunity Tax Credit. While there are certain income limits and requirements, you might get as much as $2,500 back on your taxes. Furthermore, 40% of the credit is refundable, which means you can get a check of up to $1,000 even if you don't owe any taxes.
- The Lifetime Learning Credit. The Lifetime Learning Credit can save you up to $2,000 on your 2017 taxes. Though there are income limits and eligibility requirements, if you qualify, it can serve as a nice student tax break.
- The Child and Dependent Care Credit. Depending on your child care expenses and income level, this credit lets you claim up to $3,000 for a single child under 13 or $6,000 for two or more children under 13. Only lower-income families, however, will get to claim the maximum.
Keep in mind that some of these tax credits may overlap, so it pays to familiarize yourself with how they work and see whether you're eligible.
4. Flexible spending accounts
Flexible spending accounts allow you to pay for the expenses you're already incurring with pre-tax dollars, thus lowering your overall tax burden. For 2017, you can put up to $2,600 into a healthcare FSA and use that money to pay for eligible expenses like copayments, eyeglasses, and dental work. Similarly, if you spend money on child care so that you and your spouse can work, you can pay for some of those expenses with pre-tax dollars. Couples who are married and file jointly can put up to $5,000 into a dependent care FSA, while parents who are married but file separately are allowed up to $2,500. The only thing to watch out for with either type of FSA is that the money goes in on a use-it-or-lose-it basis. If you overfund an FSA and don't rack up enough eligible expenses to deplete your balance by the end of your plan year, you'll forfeit whatever money remains.
5. Commuter benefits
Many people have to spend money to get to work, but if you sign up for commuter benefits through your employer, you can use pre-tax dollars to pay for your travel expenses. For 2017, you can allocate up to $255 per month for transit and $255 for parking for a combined monthly total of $510. Say you normally spend $100 a month to park at your local train station and another $250 a month on your rail pass. You can pay for your entire commute with pre-tax dollars, and if your effective tax rate is 30%, your commuter benefits could save you $1,260 over the course of the year.
We'd all like to lose less money to taxes. Take advantage of these tax breaks, and you just might hang onto more of your hard-earned cash in 2017.