Category: Time

The Top 7 Tax Credits to Maximize Your Return in 2017

Recently, Mother Nature temped us with spring temperatures here in the Heartland.  After a few days of open windows, patio drinks and outside workouts, winter weather returned, but that dose of Vitamin D served as a sunny reminder that the seasons are soon to change – and the end of Tax Season is near.

Even with a few extra days to file, this year’s deadline of April 18 is just a page on the calendar away, so if you haven’t already finished your return it’s time to get started!  As with most areas of personal finance (and life in general), being organized and allocating enough lead time to assembling and preparing your return will reward you in the end.

When you’re pulling together all of the important paperwork to document and include in your return, there are two considerations to keep in mind that will help you maximize your tax return and ensure you’re paying only what you owe or getting the biggest refund back:  deductions and credits.

A deduction is a qualifying expense which reduces your taxable income by the same percentage as your tax rate.  This means, if you fall into the 25% tax bracket ($37,651-$91,150 for a single person or $75,301-$151,900 for married couples filing jointly) a $1,000 deduction saves you $250.  We detailed common deductions earlier this year in the post The Top 7 Tax Deductions to Maximize Your Return in 2017.

A credit lowers your tax bill dollar for dollar, so a $1,000 credit reduces your tax bill by $1,000 no matter your tax bracket.  There are two types of credits, refundable and nonrefundable.  Nonrefundable credits allow you to reduce your tax liability to zero, but any overage will not result in a tax refund.  Any surplus from refundable credits can come back to you as a refund.

Child Tax Credits – This is a nonrefundable credit of up to $1,000 for each qualifying child. Qualifying children must be related to you, under 17 years old, eligible for you to claim as a dependent, and live with you more than six months out of the year. You must also provide at least half of the financial support for the child. 

Earned Income Tax Credit (EITC) – Offers savings to lower income workers and families. The Internal Revenue Service website provides resources for determining your eligibility for this refundable credit.

Adoption Credit – If you adopted a child domestically, internationally or from foster care, you may be able to take a nonrefundable credit of up to $13,460 for qualified expenses incurred, including adoption fees, court costs, attorney fees, and travel expenses. If you adopted a special needs child, you may be able to take the credit even if you didn’t incur any adoption expenses.  Step-child adoptions are excluded from this benefit.

Energy Savings Credit – You may qualify for a credit if you installed a solar, wind or geothermal mechanism for energy collection and use in your home, or purchased a fuel cell or electric vehicle.

Retirement Savings Contributions Credit (Saver’s Credit) – This credit rewards lower income tax payers for making eligible contributions to their traditional or ROTH IRA or employer-sponsored retirement plan. The amount of the non-refundable credit is 50, 20 or 10 percent of retirement contributions up to $2,000 (or $4,000 if married filing jointly), based on adjusted gross income.

Child and Dependent Care Credit – If you have a child under the age of 13 or are responsible for a physically or mentally disabled adult who required and received day care by a non-related provider while you and your spouse worked or looked for work, you may qualify for this credit.

The amount of your credit is based on how much you spent (less any employer provided child or dependent care benefits, including pre-tax flexible spending account dollars), as well as your income.  The higher your income the lower the percentage of costs you can claim, though even those in the top tax bracket can claim 20% of their costs.  Maximum credit is $3,000 for one child or dependent adult enrolled in day care, or $6,000 for two or more.

American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) – AOTC is a credit for tuition paid by you or through borrowed funds, such as student loans, for the first four years of college.  You can get a maximum annual credit of $2,500 per eligible student in your family. If the credit brings the amount of tax you owe to zero, you can receive 40 percent of any remaining amount of the credit (up to $1,000) as a refund.  To qualify for the AOTC, the student must be pursuing a college degree, be enrolled at least half time for at least one academic period during the calendar year, not have claimed the AOTC or the former Hope Credit for more than four years, and not have a felony drug conviction.

Non-degree seeking students may claim the LLC for courses taken at an accredited institution to develop or improve their job skills.  There is no limit on the number of years you can claim the non-refundable LLC, which is worth up to $2,000 annually.  Between the AOTC and the LLC, the LLC has a much lower income maximum.  You cannot claim the AOTC and the LLC in the same year.  You cannot claim either the AOTC or the LLC if your education expenses were reimbursed by an employer or funded through grants or scholarships.

The deadline for filing your 2016 return is April 18, so you have three extra days this year to make sure you’ve accounted for every single credit and deduction that will benefit you.   

And if you’re filing online, don’t forget to use a portal!  Both Ebates and offer cash back from H&R Block and TurboTax online or you can earn 1,000 miles by going through Southwest’s Rapid Rewards shopping portal.

Disclaimer:  Many of the credits mentioned above have income minimums or maximums, as well as other qualifying criteria not expressly mentioned.   I am not a tax or accounting expert, so I encourage you to seek the advice of a professional to confirm your individual eligibility for these and other credits and deductions.

The Top 7 Tax Deductions to Maximize Your Return in 2017

The daughter of a CPA, my memories of tax season growing-up weren’t great – my dad spent most nights and weekends at the office, and was stressed from New Year’s Day to Tax Day.  I’m not kidding when I say April 16 was celebrated as a holiday in our home.

Which is why, as an adult, it’s a wonder I actually enjoy preparing our annual return.  Seriously… every year I eagerly anticipate the receipt of each form and ritualistically on January 1st, I start compiling a file of all our other paperwork.  I get giddy over completing our yearly 1040 form for the same reason that points, miles and portals get me excited: I enjoy seeing how my savvy can save or make us money.

Investing time into preparing for and compiling the necessary documents well before visiting your tax professional or logging-in to your online software of choice will help you get a larger refund or owe less, depending on your situation.  If you’re one of the millions of Americans who benefit from itemizing qualifying expenses on their return (versus taking the standard deduction), here are a few common deductions to consider:

Mortgage interest, insurance and points – Interest paid on your primary owner-inhabited residence is  typically deductible.  Points paid during refinancing can be deductible.  And in limited instances, if you pay private mortgage insurance (PMI), that expense may also be deductible.

Student loan interest – You can deduct up to $2,500 of interest paid on some types of student loans.  This is claimed as an adjustment to income, so you don’t even need to itemize to benefit.  However, the amount of your deduction is reduced if your modified adjusted gross income (MAGI) is between $65,000 and $80,000 as a single person, or between $130,000 and $160,000 if filing jointly.  Singles with a MAGI of $80,000 and married couples with a MAGI of $160,000 no longer qualify for this benefit.

Charitable giving – If you made donations to your church or a qualifying charity, you can deduct those full amounts so long as you have a written record of the qualifying donation and no goods or services were received by you for the gift.  In addition to monetary gifts, you can also deduct in-kind donations like clothes and home goods.  Websites and apps like ItsDeductible can tell you the deductible value of these items.  And even though your time spent volunteering isn’t deductible, your mileage driving to and from volunteering is deductible.  Since 2016 was an election year, it’s important to note that campaign contributions are not deductible, neither are gifts to individuals even if they’re given through sites like Go Fund Me.

Medical, dental, vision and mental health expenses – If they exceed 10 percent of your MAGI, you can deduct your expenses associated with the prevention, diagnosis and treatment of injury or illness.  You can also deduct the cost of transportation, health insurance premiums, prescription drugs, and non-cosmetic procedures.

Taxes paid and tax return – Eligibility varies, but you may be able to deduct personal property taxes, such as those paid to the state for a vehicle or boat.  While you might be able to deduct this and other state taxes, federal taxes, including penalties and interest owed are not deductible.

If this cost combined with other miscellaneous deductions (several of which are mentioned below) totals more than 2 percent of your income, you can deduct the cost of tax preparation software or the fees associated with hiring a Certified Professional Accountant (CPA) to prepare your annual return, provide advice on tax issues, or assist you during an audit.

Job search and moving expenses – If you are applying for positions in the same line of work as your previous job and the combined costs exceed of this and other miscellaneous deductions total 2 percent of your MAGI, you can deduct unreimbursed recruiting and employment agency fees, the cost of printing business cards, advertising and resumes, and travel and hotel expenses.  Unfortunately, the same expenses cannot be deducted if you’re new to the workforce and looking for your first job.

If you moved more than 50 miles for a new job or to start a business, you can also deduct your out-of-pocket moving expenses, including mileage, parking fees and tolls.  Obviously, if you received a relocation stipend from your employer, you are ineligible for this deduction.  You can take this deduction for your first job.

Educator expenses – Teachers can deduct up to $250 (or $500 if both spouses are eligible educators), for unreimbursed purchases like books, supplies and equipment, including computers and software, as well as the cost of relevant professional development courses.

The deadline for filing your 2016 return is April 18, so you have three extra days this year to make sure you’ve accounted for every single deduction that will benefit you.   

And if you’re filing online, don’t forget to use a portal!  Both Ebates and offer cash back from H&R Block and TurboTax online or you can earn 1,000 miles by going through Southwest’s Rapid Rewards shopping portal.

Disclaimer:  Many of the deductions mentioned above may have other qualifying criteria not expressly mentioned.   I am not a tax or accounting expert, so I encourage you to seek the advice of a professional to confirm your individual eligibility for these and other deductions and credits.

Donate Generously, Without Spending a Dime

This season of thanksgiving gives us a dedicated time to reflect on our blessings, and give back to those in need.  Red kettles and bell ringers greet you at every store and year-end solicitations start filling your inbox and mail box.  But instead of giving them your loose change, here are a few ways you can be the change:

Gift the gift of time.  Find an organization and mission that speaks to your heart and use your talents contribute to their cause.  Cook and serve meals, teach a computer class, mentor at-risk youth, or help rebuild neighborhoods.  And don’t forget to log your mileage when driving to and from volunteering, which you can deduct on your taxes if you itemize.

Collect travel toiletries to give to a shelter or your local Ronald McDonald House for use by families away from home and in the hospital with a sick or injured child.  I never use hotel lotion, but it’s one of the items most coveted by those who are homeless and spend all four seasons out in the elements.  Shampoo, soap, conditioner, combs, cotton swabs and toothpaste are also appreciated.

Use coupons combined with sales to pay pennies for non-perishables and hygiene products to donate to food banks.  Look for deals on diapers, baby food and formula, items which are less frequently donated but are always needed.

Give blood or donate plasma.  Before I started working in health care, I thought blood transfusions were just for blood loss due to injuries or surgical procedures, but cancer patients, those with severe infections and other life-threatening ailments may also need their blood supply replenished.  And consider joining the national bone marrow registry.

If you can’t sell it on eBay or Craig’s List, donate it.  No matter the condition, there’s never a need to send your old outfits, books and home goods to the landfill.  Donated paperbacks that won’t sell or clothes no longer wearable are frequently sold to textile recyclers and eventually be resurrected as industrial products or trendy new apparel with hipster appeal.  Not only are you helping others and saving the planet, but you can also include in-kind donations among your charitable deductions when you itemize on your tax return.

Ebates and Mr. Rebates only offer cash back on Amazon purchases from select departments.  If your purchase isn’t one of those rotating departments, consider logging-on via AmazonSmile.  By using this portal, Amazon will donate 0.5% of the sale price to your charity of choice.  You can log-into AmazonSmile using your Prime membership, and don’t forget to use the MileagePlus X app to earn United miles by first buying an Amazon gift card before checking out.

There are lots of ways you can make a difference in the lives of others besides making a financial contribution.  This holiday season and all year long, do what you can to make the world a little better and a little brighter for those less fortunate.

Lowering the High Cost of Higher Education

We recently paid off the last of our combined $85,000 in student loan debt.  Considering we share more degrees than you can count on one hand, that amount could have been significantly more had I not made these smart decisions along the way:

My high school allowed juniors and seniors to enroll in classes at our local community college for dual credit.  In my small hometown that meant attending class at the college, with college students (which was itself a learning experience).  In bigger school districts, those credit-earning courses are taught at the high school.   I only took advantage of the opportunity my senior year, but already had 12 hours of general education classes completed before even receiving my high school diploma.

After graduating, like most of my high school classmates, I stayed home freshman year and attended the same community college.  In addition to the cost savings of living with my parents walking distance away from school, I also served as Assistant Editor of the newspaper and yearbook, a position that provided for two semesters of tuition plus the cost of books.  I finished my first full year of community college with summer school, which meant I transferred with enough hours to be considered a junior and could immediately begin degree-specific coursework.

When visiting Universities, I toured several Division I schools with sprawling campuses, pompous teachers and huge athletic programs, which pushed me towards choosing a smaller school.  Not only was the tuition less at my alma mater than at the Big 12 colleges I considered, but full time students paid a flat fee, which meant you could take 12 hours or 24 hours a semester for the same price.

In addition to the financial benefits, I enjoyed personal, leadership and job opportunities that would have been out of reach (and over budget) at a larger school.  I was hired for a part-time position as a legal assistant at a local law firm, where I worked for two years.  I was elected to the Student Government Association, where I served a year as the Director of Academic Affairs.  I was a member of the Student Ambassadors and a homecoming queen candidate (twice).  And I joined a sorority and served as a Vice President on the university’s Panhellenic Council.  At commencement, I would be recognized as one of the top ten women in my graduating class.

Those positions and accomplishments looked great on scholarship applications (and later, my resume), and I secured scholarships from a variety of sources.  One of the scholarships I received was from my sorority, which off-set the cost of membership plus some.  Living in the sorority house my senior year was also a significant money-saver.  Not only did it mean I wouldn’t be throwing away three months of summer rent after graduation, but the cost included utilities and some food and was significantly less than an apartment, even with roommates.

After graduation and a summer working in the city (i.e. trying to figure out what I wanted to do with the rest of my life), I returned to the same school after accepting a graduate assistantship.  This position paid for tuition and books, plus a small stipend in return for staffing the department’s computer lab and library a certain number of hours per week.  Additionally, I accepted another on-campus job as the office manager for the university’s legal aid office.

While I set myself up for success with this series of good choices, I also made a few money mistakes along the way.  I graduated with credit card debt and elected to pay Sallie Mae interest only for the first year.  But the education I earned – including the life experiences along the way – has been single best investment in my financial future and even early in my career is an asset that is already paying dividends.

Building a Basic Wardrobe That Isn’t Basic

It’s autumn in the Midwest.  With falling leaves and dropping temperatures come scarves, sweaters and boots.  This weekend, I took the opportunity to pull out of storage my cold-weather staples and flip my summer wardrobe to fall.  Since I keep a capsule wardrobe my seasonal shift was as simple as putting away a few pairs of shorts and switching out tees for long-sleeved layers.

My creation of a capsule wardrobe was motivated in equal parts by my desire to save money and my love of sleep and the extra time this style affords me in the morning.  When literally everything in my closet coordinates, there’s no wasting time wondering if things go together.  Some of the world’s most successful people, from President Barack Obama to Facebook founder, Mark Zuckerberg, have adopted a capsule wardrobe in an effort to make one less decision every day.

Here are my tips for building a basic wardrobe that isn’t basic:

  • Know what works for your body and what to wear that has you feeling your very best, whether that be powerful, put-together or pretty. I like skirts and dresses on others, but they just don’t work for me.  So as much as I love a pencil skirt in the store, I stick to pants.  And personally, ballet flats leave me feeling blah.  So along with my morning coffee (French press, please) I need at least a little heel to put a perk in my step.
  • Mix and match pieces that easily coordinate with each other. I work in a professional setting, so black and tan trousers are my go-to staples.  I like Nordstrom’s Halogen brand.  When a little more formality is needed, I can throw on a blazer.
  • For tops, I stick with neutral solid colors that can pair with either pant. The Tippi from J. Crew is a light-weight three-quarter length sleeve sweater that can be worn all year long.  This all-season piece is available online year-round and different colors are released – and go on sale – throughout the year.
  • Like pants, I keep it simple with two pairs of shoes for work – in tan and black patent. Do make sure all your shoes have the same heel height and will work with all the pants in your closet.  And don’t forget to invest in tailoring for a polished look.  Some stores even offer the service for free with purchase or for store card holders.  I’m a fan of Cole Haan 40mm wedges.  This 1.5” heel gives a little bit of height, but pants tailored to this length could still work with those old flats still lingering in your closet.
  • Buy high-quality pieces that will last years and take care of your investment. I look for pants I can wash and iron at home.  During summer months, I wear my sweaters twice between dry-cleaning and in the winter I add an extra day with Dryel.  And don’t throw away a pair of pumps because of a scuffed heal.  Adding an insole will keep the inside in good shape (and smell!) and a cobbler can keep your old shoes looking new.
  • Mix up your uniform with accessories. Skip the trendy choker and go for classic jewelry that will never go out of style.  Scarves are great for the colder months and you can rock statement necklaces throughout the year.
  • For special occasions, either keep an multi-purpose little black dress at the back or your closet or try Rent the Runway instead of buying something new for every event.
  • Don’t ever pay full price! Sign up for email notifications.  Use the Wish List feature on your favorite store app to save items you love and then check back frequently for sales.  And always use a shopping-portal – my current faves are and Ebates, which even offers cash back in a few select brick and mortar stores.
  • Keeping your closet and drawers organized and clean will help fight the urge to shop. Avoid that paralyzing feeling of not knowing what to wear by having all your options visible and easily accessible.  Your days are stressful enough, make this first decision one that sets you up for success!

Adopting a capsule wardrobe can help you be intentional about how you spend both your time and money.  Use the changing seasons as a chance to make your life better by living more with less.