17 Ways To Lower Your Income Tax And Do Something Important For You
Tax Incentives You Can Use To Your Advantage!
We have put together this list of incentives in the tax law to let you know of ways you may be able to lower your income tax and do something important. These are brief summaries. Before using any of these tax breaks be sure to check out exact details.
Your tax savings is often determined by your top federal tax bracket (0%, 10%, 15%, 25%, 28%, 33%) plus your Indiana State tax (around 5%). Ask us if you'd like to know your top tax bracket.
1) If you will be helping a child or grandchild with college, take advantage of the 20% tax savings on the state by putting money into an Indiana College Choice 529 plan at least 1 year (earlier if you can) before college costs begin. You can put yearly up to $5000 (for all children) in the plan. ($5000 saves a $1000).
2) If you install a new geothermal heat pump, solar or wind energy before 2017, the federal gives a 30% federal tax credit against tax for qualifying items. Must have federal tax to claim.
3) If you are thinking of taking money from your retirement plan (before retiring or age 59 ½), it may be much better to borrow instead of taking money out. Borrowing avoids federal tax, state tax and a 10% penalty and helps your retirement grow faster.
4) If you have college or trade school costs for you or a dependent, be sure to print out the 1098-T from school's web site showing amounts paid (most schools don't mail anymore.) If ½ time student or more, also keep records on costs of books, supplies, and equipment purchased including computers and printers.
5) If you insulate, install upgraded doors and windows, storm doors or weather stripping be sure to keep your receipts. The Federal gives a 10% credit in 2016 (hasn't been extended for 2017). It is limited to $500 credit against tax which is reduced by energy credits claimed in the last 8 years.
6) If you pay Child or Dependent Care so you can work, make sure you get the care providers social security # or ID number when you start the daycare so you can claim a 20 to 30% credit against tax. Also be aware if care is done in your home, you may be considered an employer and have to pay social security and unemployment taxes.
7) If retired or working, take advantage of before tax deductions your employer offers for life or health insurance, medical bills, dependent care and flexible spending plans. On amounts put in the plan you save not only the top % of your federal and state tax brackets, but if you are working you save 7½% on social security.
8) If you, or someone you know, might consider adopting a child, there is a large credit for adoption expenses. The credit on the Federal is up to $13,400 against tax. The State gives the smaller of 10% of federal credit or $1000.
9) If you work, a good way to lower your income tax and save for retirement is to put money into a 401K, IRA or other retirement plan. On amounts put in the plan you save the % of your top tax federal bracket and 5% on state. You also save as most employers match a part of your contribution. Plus, you earn money that would have been lost to taxes.
Younger adults should start with at least 1% of wages in a retirement account and increase at least 1% a year. Adults in their mid-30's and older should put 10% to 15% a year.
10) If you may need Long Term Care Insurance, consider an Indiana Partnership approved plan. You receive a 5% credit on the cost of the insurance. Best to purchase in early 50's or younger to keep costs more affordable.
11) If you itemize (deduct home interest, contributions, taxes, medical, travel) here's how you can maximize your savings.
- If buying a car or other property, using a home equity loan instead of an auto loan gets you a deduction.
- Keep receipts on lottery and gambling losses so you can take a deduction if you win.
- Donating stock or property that has increased in value avoids tax on gain and helps your charity.
- When donating personal property get a receipt and keep a list of the items and their thrift shop values.
- For small donations, donate with a check or credit card so you have a record to take a deduction.
- For cash, check or credit card donations over $250 make sure you get a receipt from the charity.
12) If you buy a plug in electric car (such as a Chev. Volt) you may be able to claim a credit up to $7500. Again it lowers federal tax so you have to have enough federal tax to get full credit.
13) If you have extra money in your IRA account you may be able to give a contribution up to $100,000 per spouse's IRA to your favorite charity and avoid tax on the IRA. Must be distributed directly to charity from IRA. Should wait until year end to make sure IRA Charitable deduction is extended.
14) If you have bank CDs earning low interest rates, you may want to consider the tax advantages of "qualified" dividend income on quality stocks. "Qualified dividends" are taxed at a much lower rate than interest income and you may earn more, too. You do assume some risk with stocks so you may want to talk with a broker to see if they are right for you.
15) If you own individual stocks, you may want to consider year-end sales on stocks that have lost money to help offset gains on sales of stocks that have earned money.
16) If you are covered by a Health Savings Account (HSA) and have high medical bills, when we do your taxes have us look at how you can make an extra contribution to HSA that you can take right out that lets you claim a deduction on your return.
17) If you aren't covered by medical insurance, take a look at healthcare.gov to see if you qualify for subsidies to pay for part of the insurance. Sign up time is Nov. 1st to Feb. 15th.
Don't miss other tax deductions. Check out our What to Bring Lists for 101 Tax Deductions that Save You Money.