TIPS: Tax Breaks for the Average Person

kienitz tax breaks

The Tax Cut and Jobs Act made significant changes to the tax code and eliminated or diminished many tax breaks for the average person. It did this in several ways, including reducing deductions for property, state and local taxes as well as eliminating personal exemptions. Despite these changes, there are still many tax breaks that most people can still take advantage of. Below is a list of just a handful of them.

American Opportunity Tax Credit

The American Opportunity Tax Credit provides up to a $2,500 tax credit for college expenses paid by either the student or the student’s parents. This includes money spent on books, tuition, fees and certain school supplies. However, it does not include school-related transportation costs or living expenses.

What’s especially nice about this tax break is that it’s a tax credit and not a deduction. This means it can reduce a taxpayer’s tax liability on a dollar-for-dollar basis rather than a percentage basis. For example, if a taxpayer owed $4,000 in taxes and was eligible for the full American Opportunity Tax Credit amount of $2,500, the tax liability is reduced by a full $2,500 so now they only owe $1,500.


Child Tax Credit

A taxpayer with a child may receive up to a $2,000 tax credit per child and up to $1,400 of this amount is refundable. A refundable tax credit means it can result in Uncle Sam cutting the taxpayer a check. For instance, if the taxpayer owes nothing in taxes but qualifies for the $2,000 child tax credit, then they receive a check from the federal government for $1,400.

Another great thing about this tax break is that it applies to those at relatively high-income levels. Only when a single taxpayer reaches $200,000 in adjusted gross income (this amount is $400,000 for married joint filers) will the child tax credit start phasing out.

Health Savings Account (HSA) Deduction

Workers who make contributions to their HSAs can deduct the amount contributed. Additionally, withdrawals from HSAs are deductible as long as they’re spent on qualified medical expenses.

Saver’s Credit

Many people already know that certain contributions made to a retirement plan like a 401(k) or IRA are tax deductible. But there’s something even better for those who qualify. It’s called the Retirement Savings Contributions Credit (aka: Saver’s Credit) and it allows taxpayers to receive a tax credit amounting to 10%, 20% or 50% of the contributions made into the qualified retirement plan.

The exact percentage depends on the taxpayer’s adjusted gross income, with a maximum credit of $2,000 ($4,000 for those who are married filing jointly). And anyone making more than $64,000 (married, filing jointly; $48,000 for head of household) are not eligible for this tax credit. Other eligibility requirements include:

  • Being 18 years of age or older,
  • Not a full-time student, and
  • Not claimed as a dependent on another person’s tax return.

Mortgage Interest Tax Deduction

This deduction isn’t what it used to be, but it still provides for a tax deduction for the interest paid on qualified mortgage debts of up to $750,000. There are other caveats and rules that apply this deduction, such as only applying to a taxpayer’s main or second home.

That’s All There Is?

Absolutely not. There are so many more tax deductions and credits available, but this article can only scratch the surface. To learn more, taxpayers are encouraged to do some research online or speak with their tax preparer or other tax professional.



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