Tax Savings Strategies

Updated for filing 2021 tax returns

What are the top 9 best tax-saving strategies?

Everyone could use a few more tax breaks, so here are some that can really pay off if you qualify.

Child and Dependent Care Credit – Do you pay for a babysitter or childcare while you're at work? Need someone to keep an eye on your disabled spouse while you're away on a business trip? The Child and Dependent Care Credit can pay you back for at least part of these expenses. The credit is worth up to $4,000 for one child or dependent, or $8,000 for the care of more than one person.

Child Tax Credit – The Child Tax Credit is automatically calculated based on the age of your child(ren) and your income level. It’s fully refundable and worth up to $3,000 for children between 6 and 17, and $3,600 for children under 6. Plus, if your dependent doesn’t qualify for the CTC, they could qualify for up to $500 as a nonrefundable credit.

Earned Income Tax Credit (EITC) – Also called the EIC, this credit is aimed at low- and moderate-income taxpayers who hold down jobs or are self-employed. It's available to working families as well as single working taxpayers who qualify. The credit is worth up to $6,728, and the amount varies based on income, number of qualifying dependents, and age of the taxpayer.

Saver’s Credit – This credit gives you a bit more incentive to save for retirement. It gives taxpayers who are saving toward retirement a credit of up to $1,000 (twice that for married couples). You qualify by contributing to a qualified retirement plan such as a 401(k) or IRA.

Education Credits – The American Opportunity Tax Credit is for expenses at a qualifying institution for the first four years of college. The Lifetime Learning Credit is aimed at those working toward a post-graduate degree, or a taxpayer who takes courses over a number of years. The American Opportunity Credit is worth up to $2,500, and the Lifetime Learning Credit is worth up to $2,000.

State and Local Taxes Deduction – If you live in a state that has state income or local income tax, you can deduct at least part of those taxes from your taxable income up to $10,000. Alternatively, you can deduct state and local sales taxes.

Energy-Saving Tax Credit – Check out this credit if you've installed an energy producing systems in your home – solar, wind, or fuel cell. The credit is equal to a percent of the total cost of qualified property depending on the year it was placed in service:

• If placed in service in 2017, 2018, or 2019, the credit is capped at 30% of the cost of qualified property.
• If placed in service in 2021, the credit is capped at 26% of the cost of qualified property.

In 2018, 2019, 2020 and 2021, the residential energy property credit is limited to an overall lifetime credit limit of $500 ($200 lifetime limit for windows).

Charitable Expenses – Most of us know we can deduct cash or property contributions to a qualified charity or non-profit organization, but you may not know that you might be able to deduct expenses from volunteering. Just about any expense you incur in the course of volunteering may qualify, as long as you are not reimbursed by the organization. You cannot deduct the worth of your volunteer labor or services.

Also, for tax year 2021, you could qualify for an above-the-line deduction worth up to $600 for cash donations to a qualifying charity.

Gambling Losses Deduction – You’re required to report all your gambling winnings on your tax return, but you can deduct your losses from your taxable income to help offset winnings (only if you itemize deductions). Deductible losses are limited to the amount of your winnings. So if you lost $2,000 to win $500 on the slot machines, for example, you’ll declare the $500 as income – and can claim $500 in losses as a deduction.

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