There are, however, ways to save on your taxes through life’s transitions. Here are 12 tax tips to help you save through major life events.
1. Deduct your tuition. Education expenses may be tax deductible if they maintain or improve the skills required in your employment.
2. Invest in a 529 plan to save for your children’s education. You won’t get a tax deduction, but there won’t be a tax on the earnings and growth of those funds if they are used for education.
3. Tally the cost of books and supplies purchased for your education. Expenses directly related to your college education may be tax-deductible and may put more money back in your pocket.
The Working World
4. Invest in 401(k)s and IRAs as soon as possible. Small contributions growing from an early age are more valuable than large contributions made years later.
5. Learn about your company’s fringe benefits, such as tuition assistance plans, free employee counseling, mass transit commuting assistance, Medical Savings Accounts and other tax-free perks.
6. Get next year’s refund now by adjusting your withholding so that you break even with the IRS at the end of the year. If you need help saving, have money automatically deposited to savings from each paycheck.
7. Only borrow from your 401(k) in an emergency. The interest you pay on the loan won’t be tax deductible, and you will lose the capital appreciation you’d enjoy if you’d left it invested in the plan.
8. Put tax-free money into your employer’s dependent care plan. Though this will reduce your child and dependent care credit, it’s still a good financial move for most taxpayers.
9. Claim the Child Tax Credit on your taxes. It is an additional $2,000 credit you may be able to claim for each of your dependent children under 17. Married couples with income up to $400,000 and a single parent with income up to $200,000 may be eligible for the tax credit.
10. Gather your receipts for dependent care. You may be able to claim the Child and Dependent Care Credit even if you don’t work, if your spouse works and you are a full-time student or disabled. Don’t overlook expenses eligible for the child and dependent care credit such as nursery school, private kindergarten, after school programs, and daycare.
11. File jointly. Married couples filing separately are barred from many tax deductions and credits, so unless you are trying to distance yourself from a tax-evading spouse or a soon-to-be-ex, a joint tax return is your best move.
12. Take advantage of the Other Dependent Credit for non-child dependents. If you take care of a non-child dependent like a parent, grandparent or even a friend you may be able to claim the new Other Dependent Credit that is $500 per eligible dependent.