3244 Brookside Rd 
Suite 140 
Stockton, CA 95219

Tax Read Time: 4 min

How to Make the Tax Code Work for You

By May 20, 2022, over 145 million taxpayers had dutifully filed their federal income tax returns.1 And they all made decisions about deductions and credits – whether or not they realized it.

When you take the time to learn more about how it works, you may be able to put the tax code to work for you. A good place to start is with two important tax concepts: credits and deductions.

Keep in mind that the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Credits

As tax credits are usually subtracted, dollar for dollar, from the actual tax liability, they potentially have greater leverage in reducing your tax burden than deductions. Tax credits typically have phase-out limits, so consider consulting a legal or tax professional for specific information regarding your individual situation.

Here are a few tax credits that you may be eligible for:

  • The Child Tax Credit is a federal tax credit for families with dependent children under age 17. The maximum credit is $2,000 per qualifying child, depending on your income level.2

  • The American Opportunity Credit provides a tax credit of up to $2,500 per eligible student for tuition costs for four years of post-high-school education.3

  • Those who have to pay someone to care for a child (under 13) or other dependent may be able to claim a tax credit for those qualifying expenses. The Child and Dependent Care Credit provides up to $4,000 for one qualifying individual or up to $8,000 for two or more qualifying individuals.4

Deductions

Deductions are subtracted from your income before your taxes are calculated, and thus, may reduce the amount of money on which you are taxed, and by extension, your eventual tax liability. Like tax credits, deductions typically have phase-out limits, so consider consulting a legal or tax professional for specific information regarding your individual situation.

Here are a few examples of deductions.

  • Under certain limitations, contributions made to qualifying charitable organizations are deductible. In addition to cash contributions, you can potentially deduct the fair market value of any property you donate. And you may be able to write off out-of-pocket costs incurred while doing work for a charity.5

  • If certain qualifications are met that were updated in the 2017 Tax Cuts and Jobs Act, you may be able to deduct the mortgage interest you pay on a loan secured for your primary or secondary residence.6

  • Amounts set aside for retirement through a qualified retirement plan, such as an Individual Retirement Account, may be deducted. The contribution limit is $6,000, and if you are age 50 or older, the limit is $7,000.7

  • In most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or qualified retirement plan. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

  • You may be able to deduct the amount of your medical and dental expenses that exceed 7.5% percent of your adjusted gross income.8

Understanding credits and deductions is a critical building block to making the tax code work for you. But remember, the information in this article is not intended as tax or legal advice. And it may not be used for the purpose of avoiding any federal tax penalties.

1. IRS.gov, 2022
2. Investopedia.com, June 24, 2022
3. IRS.gov, 2022
4. IRS.gov, 2022
5. Investopedia.com, March 23, 2022
6. Investopedia.com, March 23, 2022
7. Investopedia.com, June 29, 2022
8. IRS.gov, 2022

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Share |
 

Related Content

Retirement Seen Through Your Eyes

Retirement Seen Through Your Eyes

What's your vision of retirement?

Can Group, Private Disability Policies Work Together?

Can Group, Private Disability Policies Work Together?

Loss of income from disability has the potential to cause financial hardship. Disability insurance can help.

Navigating Retirement Pitfalls

Navigating Retirement Pitfalls

Why are they made again and again? Making sense of these errors in judgement.

 

Have A Question About This Topic?







Thank you! Oops!

The Importance of Business Valuation

You know your company inside and out. But do you know how much it’s actually worth on the open market?

7 Easy Ways to Improve Your Finances This Week

Improving your financial life doesn’t have to be tedious and time-consuming. These easy actions can lead to improvements in a

12 Days of Saving Tips

Having a set of savings tips to refer to can help make your short-term and long-term financial outlook merry and bright.

View all articles

What's My Potential Estate Tax?

This calculator helps estimate your federal estate tax liability.

Bi-Weekly Payments

This calculator estimates the savings from paying a mortgage bi-weekly instead of monthly.

Impact of Taxes and Inflation

Estimate the potential impact taxes and inflation can have on the purchasing power of an investment.

View all calculators

Managing Your Lifestyle

Using smart management to get more of what you want and free up assets to invest.

Investment Strategies for Retirement

Investment tools and strategies that can enable you to pursue your retirement goals.

An Inside Look at Retirement Living

A number of questions and concerns need to be addressed to help you better prepare for retirement living.

View all presentations

The Latte Lie and Other Myths

Check out this video to begin separating fact from fiction.

The Richest Man in Babylon

In good times and bad, consistently saving a percentage of your income is a sound financial practice.

Safeguard Your Digital Estate

If you died, what would happen to your email archives, social profiles and online accounts?

View all videos