Don't Overlook These 14 Tax Credits and Deductions

CREDIT WHERE IT'S DUE

As the deadline to file 2015 tax returns approaches, some taxpayers may be scrambling to find a few last-minute deductions or credits. It may be too late in some cases -- many of the "tricks" that reduce taxes must be executed before Dec. 31 -- but many last-minute tax-savings tips still work at this late date. Remember that tax credits are much more valuable than deductions, because each dollar in credit equates to one less dollar in taxes paid. Deductions reduce taxable income, so each dollar in deductions likely offsets taxes by 15 to 50 cents, depending on the tax bracket.

AMERICAN OPPORTUNITY TAX CREDIT

The American Opportunity Tax Credit can be claimed by eligible students who have at least half-time status at an accredited school. It's available only during the first four years of post-secondary education and is worth up to $2,500 in tax credits: 100 percent of the first $2,000 in expenses plus 25 percent of the next $2,000. Schools should send students a 1098-T, which shows the amount paid last year in tuition and fees. The American Opportunity Tax Credit applies to more than just tuition payments. Eligible expenses such as books, supplies, and necessary equipment -- maybe even a computer -- can be offset. For students whose 1098-T does not max out the allowed credit, digging up old receipts or email confirmations of purchases can make up the difference.

LIFETIME LEARNING CREDIT

While the American Opportunity Tax Credit is limited to certain students, the Lifetime Learning Credit can be claimed by anyone taking classes to acquire or improve their job skills. Even students enrolled in just one class are eligible. The credit is limited to 20 percent of the first $10,000 in expenses ($2,000 is the maximum) and can be used to offset the costs of tuition, fees, books, supplies, and equipment paid to the school.

CHILD AND DEPENDENT CARE CREDITS

In addition to the exemptions, deductions, and credits (not to mention the joy) that children bring, there is a child care credit parents can claim if they paid someone to care for their children while they were working or looking for work. It also applies to the cost of a caretaker for a disabled spouse or adult dependent living in the same house. The credit offsets 20 percent to 35 percent of allowable expenses, up to $3,000 for one dependent or $6,000 for two or more.

EARNED INCOME TAX CREDIT

The Earned Income Tax Credit is available to taxpayers with low and moderate income who earned at least $1, have a Social Security number that is valid for employment, and meet a short list of other criteria. For single filers without a dependent child and income below $14,820, the credit may be worth up to $503. With one qualifying child, the income threshold rises to $39,131 and the maximum credit is $3,359. The income and credit limits increase for those with two, three, or more children and for married couples filing jointly.

PREMIUM TAX CREDIT

Individuals and families who were not able to buy a health insurance policy through an employer but instead bought from a government-run marketplace may be eligible for the Premium Tax Credit. The value of the credit depends on income and family size, the federal poverty line, and the premiums paid, and generally tracks the cost of the second-lowest silver plan. Taxpayers may choose to receive this credit in advance, to offset monthly premium bills. Those who claim too much throughout the year must pay back the difference at tax time. Those who receive too little can claim the remainder when filing.
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SAVERS CREDIT

The Savers Credit rewards people with low and moderate income who contribute to a retirement account. Taxpayers can get a credit for 10 percent, 20 percent, or 50 percent of the first $2,000 contributed, depending on income and family size. To get the minimum 10 percent, the maximum allowed income is $30,500 for single filers, $45,750 for the head of a household, and $61,000 for joint filers.

MORTGAGE INTEREST DEDUCTIONS AND CREDITS

Homeowners who itemize deductions likely know they can deduct the interest paid to a mortgage lender on a loan up to $1 million ($500,000 if married and filing jointly) for buying, building, or improving a primary or secondary home. Alternatively, interest can be deducted on $100,000 (or $50,000 if married and filing jointly) of home equity debt if the money is used for other purposes. First-time homebuyers and qualified veterans may qualify for a Mortgage Interest Credit, which offsets interest payments dollar for dollar. The value of this credit depends on where the taxpayer lives, but the maximum allowed is $2,000, and a mortgage credit certificate from a state or local government agency is required.

CREDIT FOR THE ELDERLY OR THE DISABLED

Taxpayers 65 or older -- or younger but retired on permanent and total disability -- may be eligible for a credit worth up to $7,500. Taxable income must be below $17,500 (or $20,000 if married and filing jointly) and nontaxable Social Security, pension, or disability benefits must be below $5,000. If both partners qualify and file jointly, the income limits are $25,000 for taxable income and $7,500 for nontaxable benefits.

IRA DEDUCTION

Regardless of eligibility for an employer-sponsored retirement plan, Americans can open an Individual Retirement Arrangement on their own. A traditional IRA (as opposed to a Roth IRA) is funded with pretax money. This means taxpayers can deduct each dollar contributed from their income for the year. The best part is that even if an account is opened and funded in 2016, any contributions made before April 18 (the tax-filing deadline this year) can be credited to the previous year. For 2015, the maximum contribution allowed is $5,500 (or $6,500 for those 50 or older). There are also limitations for high-income earners.

SEP-IRA CONTRIBUTIONS

For small-business owners, sole proprietors, and even people freelancing on the side, there are additional types of retirement accounts available. The Simplified Employee Pension IRA is similar to a traditional IRA, but among the differences are higher contribution limits for SEP plans. As with a traditional IRA, contributions made before the tax-filing deadline can be applied to the previous year.

SOLO 401(K) CONTRIBUTIONS

Another retirement account option for those with self-employment income is the one-participant 401(k), also known as a solo or self-employed 401(k). Taxpayers may need to apply for a federal Employer Identification Number -- a quick, online process -- to open an account. The paperwork involved can be a bit complicated, but like a SEP-IRA, a solo 401(k) lets individuals defer more money than a traditional IRA. With a solo 401(k), the taxpayer must elect to make a contribution before Dec. 31, but funds needn't be deposited until April 18.
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WORK-RELATED EDUCATION

The self-employed, including those with freelance income, may qualify for additional deductions. For example, educational expenses for workshops, webinars, books, or other material that maintain or improve skills are deductible. If the education is required by an employer or the law, related expenses also count, but educational expenses to meet the very minimum requirements of a trade or business -- or related to getting into a new line of work -- do not qualify.

CAR EXPENSES

Another commonly overlooked tax deduction lets self-employed people deduct 57.5 cents per mile driven for business purposes during the previous year. Before taking this deduction, taxpayers should make sure they have a detailed mileage log to back it up. The log should show miles driven, the date, the business purpose of the trip, and the destination. Parking and tolls incurred during business travel are also deductible, but call for more record-keeping.

HOME OFFICE DEDUCTION

A home office deduction might apply if the home is the primary place of business or a room is used exclusively and routinely for business, including to meet with clients and customers. During an audit, the IRS may ask for proof a room is used solely for business purposes -- and people who work in an office during the day and sometimes bring work home do not have a home office, according to the IRS, even if they have a dedicated place at home from which to work.