Claim your eligible credits and deductions this tax season
When W-2 forms begin arriving in the mail, it’s a sure sign that tax season has returned. This year however, there will be a slight delay for tax filers. Due to the lateness of tax law changes made by Congress, IRS will begin processing returns on Jan. 30. This date will apply regardless of whether tax returns are e-filed or on paper.
The consumer benefit from this brief delay means tax filers have more time to identify and include every available credit. Depending upon family income, size and filing status, several tax credits can boost refunds — especially among low and moderate income households. Applying every eligible tax credit will maximize refunds.
For example, although four out of five workers are eligible for the Earned Income Tax Credit (EITC), the IRS advises that one out of four fails to claim the credit for one of two reasons. Either they failed to file a tax return at all, or filed one, but failed to claim what they were due.
In 2011, 27 million eligible workers received a total of $62 billion in EITC’s, making it the largest tax program for working families, according to the Office of the Controller of the Currency (OCC).
This year, workers earning $50,270 or less can apply for EITC. The exact amount of EITC eligibility will vary by income, family size and filing status. Even so, last year the average EITC credit was $2,200, according to IRS. This year, IRS expects that workers, the self-employed and farmers that qualify for this credit could receive even higher refunds.
Another key tax credit is the American Opportunity Credit, designed to financially assist parents and students to pay for college expenses. Either individual filers with modified adjusted gross income of $80,000 or less, or married filers with a joint return earning $160,000 or less are eligible to apply. The maximum amount of the annual credit is $2,500 per student — not per family. Eligibility for this tax credit can cover up to four years of post-secondary education.
For consumers of any age pursuing post-secondary education, a Lifetime Learning Credit can help for that cost. Up to $2,000 in qualified, paid educational expenses can be claimed when enrolled in an eligible educational institution. There is an important caveat to claiming this credit: Filers can claim either the Lifetime Learning Credit or the American Opportunity Credit — but never both. Additionally, the Lifetime Learning Credit has no limit on the number of years it can be claimed for each student.
With so many consumers struggling with student loan debt, tax season also offers a tax deduction on paid student loan interest. If a filer’s modified adjusted gross income is less than $75,000 or less than $150,000 for joint returns, a special deduction is allowed for voluntary and required interest payments. The IRS advises that this tax deduction can reduce the amount of income subject to taxation by as much as $2,500.
Here’s one last cost-saving tip for tax season: Utilize the free tax assistance services in your area. In many instances, there is no reason for consumers to pay the high-cost fees charged by tax services.
IRS Volunteer Income Tax Assistance (VITA) is available to any worker making $51,000 or less. These IRS-certified volunteers can help filers to determine all eligible credits and/or deductions. Interested consumers are asked to phone 1-800-906-9887 to determine the closest local assistance center.
AARP Foundation Tax Aid offers free assistance through more than 6,000 locations nationwide to consumers aged 60 or over.
Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at: email@example.com.