Although I usually remind you to get a Roth IRA (loads of tax advantages – do it today) and contribute to a 401(k) because you get so much money out of them in retirement, today I have a reason for you to contribute: THE TAX SAVER'S CREDIT!
There are three basic rules to get this credit:
- You are 18 or older.
- You are NOT a full-time student.
- You are NOT claimed as a dependent on someone else's tax return
The amount of your credit depends on your AGI (adjusted gross income)
- Let's say you are single:
- AGI between $0 and $15,500 implies 50% credit
- AGI between $15,501 and $17,000 implies 20% credit
- AGI between $17,001 and $26,000 implies 10% credit
- Let's say you are married filing jointly:
- AGI between $0 and $31,000 implies 50% credit
- AGI between $31,001 and $34,000 implies 20% credit
- AGI between $34,001 and $52,000 implies 10% credit
There are two supplemental rules:
- Your credit cannot exceed the tax you owe (if you are supposed to receive $2,000 but the tax table says you only owe $1,500, then you only get a $1,500 credit).
- The maximum credit you can receive is $2,000 (if married, you and your spouse can get up to $2,000 each assuming you each contributed to retirement accounts)
A small caution, if you have not previously contributed to retirement accounts and have children, you should look into the pros and cons of a retirement account and your tax situation regarding the Child Tax Credit and Earned Income Credit. I would still recommend saving for retirement, however. Use IRS Form 8880 to claim the credit when filing.
By the way, you can file an amended return (Form 1040X) up to three years after the original filing date to claim tax breaks you missed in the past. This credit was introduced with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and made permanent by the Pension Protection Act of 2006.
I would take this credit... if I qualified for it :/ To Lizzie (and other readers outside the US – this is United States Federal Tax specific – sorry)
This blog is NOT financial advice. I am not a financial guru. I do not speak at seminars. I do not write books (yet). I am not a Certified Financial Planner (CFP) nor am I a Certified Public Accountant (CPA). I do not even have a business degree!
This blog is about MY money, usually focusing on how I spend less of it, how I invest it, and sometimes how I make more of it. This is that neighborly talk you have about money. Sometimes the advice is sound. Sometimes the advice is stupid. You judge that for yourself. What works for me may not work for you. This is an open discussion about my financial life and what I would do in certain situations. Agree or disagree, leave comments and I will respond to them or write further entries regarding them.
My name is Jason. I am 24 years old. I graduated with a Bachelor of Science in Computer Science, but I have an interest in money and things related to it. I am currently employed full time and single (from a financial standpoint). I want to know how to earn more of it, save more of it, protect it, invest it, avoid taxes, etc.