Taking Control of Your Taxes – Topic #45 – Free money from IRS

Filed in Gather Money Essential by on July 7, 2011 0 Comments

Free money from IRS

Many of the readers know that taxpayers can receive additional tax refund for child tax credit, itemized deductions, and IRA contributions.  What many don’t realize are the other amounts that can be realized, and the extent to which one can gain by simply understanding few tax rules.  So let’s get into the tax information and find these hidden money you can claim from IRS.  Start thinking about it now, so you can be ready to claim them early next year.

Dependent on tax bracket – in most cases, 25% tax rate is assumed

  • 401(k) Up to $11,000 free money for a couple. Tax credit of up to $4,125 (assume 25% tax bracket) for a $16,500 contribution (under age 50) or up to $5,500 for a $22,000 contribution (age 50 or higher) is allowed if contribution to company 401(k) is made. Double this amount if both contributed maximum amounts together.  Plus any employee match is also free money! If your gross income is $100,000 and the company matched at 3%, you can receive $3,000 in free money (tax deferred).
  • Traditional IRAUp to $3,000 free money for a couple. Tax credit of up to $1,250 for a $5,000 contribution (under age 50) or up to $1,500 for a $6,000 contribution (age 50 or higher) is allowed if contribution to traditional IRA is made. Even if one spouse is covered by a retirement at work, you can claim this credit if your adjusted gross income is less than $169K in 2011.  You must have earned income.
  • Child and Dependent Care Credit – Up to $1,250 free money for two children – You may use up to $3,000 of expenses paid in a year for one qualifying child or $5,000 for two or more qualifying children to figure the credit.
  • Flexible Spending account - Up to $1,250 free money - You may use up to $5,000 of medical expenses paid in one year.  However, if you do not use up the contribution amount, any remaining balance will be lost at the end of the year.
Not dependent on tax bracket
  • American Opportunity Credit – Up to $2,500 in free moneyIf the tuition is $5,000, and you figure a tentative American opportunity credit of $2,500 (100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000 of qualified education expenses
  • Lifetime Learning Credit - Up to $2,000 credit per return. Limit on modified adjusted gross income (MAGI) is $120,000 if married filling jointly; $60,000 if single, head of household, or qualifying widow(er). Credit is limited to the amount of tax you must pay on your taxable income
For lower income taxpayers
  • Saver’s Credit - Up to $1,000 in free money - If you are a single taxpayer making up to $28,250 a year, or married with up to $56,500 gross income, and not a student or dependent, you can contribute $2,000 into an IRA or Roth IRA ($4,000 if married filing jointly (MFJ)), and receive up to $1,000 free money in tax credit from IRS. It could be less than $1,000 (up to $2,000 if MFJ). Credit is limited to the amount of tax you must pay on your taxable income
  • Earned Income Tax Credit – Up to $5,751 for applicants with more than 2 children, up to $5,112 for 2 children, up to $3,094 for one child, and up to $464 if you have no children. Limit on modified adjusted gross income varies greatly by filing status and the number of children. For more information about the EITC, see IRS Publication 596, Earned Income Credit.

These are the maximum free money amounts you can find if everything lined up in your favor.  So you may not get the advantage of full credit in each case.  But if you do your math right, you can really make good profit from dealing with IRS.

I have not listed all tax credits, refunds, and deductions.  This is one reason why all taxpayers should be well versed in tax laws – No, I’m not asking you to memorize the tax laws, but know just enough to bring home thousands in free IRS money!

Throw in you “Free money from IRS” ideas

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