COVID-19 relief payments aren’t taxable, since they are essentially tax credits that the IRS awarded early. But there are other tax credits that can help lower your tax liability, the College Investor says. For example, you can claim up to $2,000 for adult educational expenses under the Lifelong Learning Credit, or use the American Opportunity Tax Credit to reduce liability as an undergraduate. And if you are a working parent of modest means, you may qualify for an Earned Income Tax credit of up to $6,660. #LastMinuteTaxTips
Tag: tax time
Clothing Donations Are Deductible
If you choose to itemize deductions on your federal income taxes, remember that all of the extra stuff you donate to ClothingDonations.org has a deductible value. Itemize your contributions, then calculate and deduct their fair market value from your returns using a long-form 1040 and Schedule A. Cash gifts and mileage driven on behalf of a charity are also deductible, but always remember to record your contributions and get receipts for them. #LastMinuteTaxTips
To Itemize or Not to Itemize?
Most people take the standard deduction on their tax returns ($12,400 for single taxpayers or $24,800 for married taxpayers filing jointly), but if you have qualifying expenses that exceed those figures, you can itemize and pay less money in taxes. If your tax situation places you at the border of standard and itemized, TurboTax suggests you create fiscally “lean” and “fat” years by bundling deductible expenses into a single tax year and itemizing, and not making so many deductible investments the next. #LastMinuteTaxTips
Contribute to a Retirement Fund to Save on Taxes
Year in and year out, making a contribution to an individual retirement account (IRA) offers a substantial tax deduction that you can take up until the filing deadline. If you are under 50, you can contribute up to $6,000 to a traditional IRA for 2020, or up to $7,000 if you are 50 or older. The resulting deduction for a taxpayer in the 25% federal tax bracket can be as much as 30% of his or her total contribution, according to the Mass Mutual blog, and it’s deliverable immediately as tax savings. #LastMinuteTaxTips
Keep Paperwork Long After You File
The Organizing Blog urges you to do a little bit of #decluttering every day, except when it comes to financial documents. The IRS asks that you keep tax returns and supporting documentation for three years after you file, meaning you should still have all of your 2015 paperwork on file today. If there was a year in which you weren’t required to file, document the circumstances and keep the proof indefinitely. Other “forever” paperwork includes loan documents and payoff confirmations; divorce, child support and alimony papers; and birth certificates, Social Security cards and military discharge papers.