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Key tax deductions and credits to save you money

how to save money on your taxes
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Tip: Tax reform nearly doubled the standard deduction. You could benefit from claiming the standard deduction rather than itemizing in 2018.

The standard deduction

You generally have two choices when filing your tax return:

  1. Claim the standard deduction (a flat dollar amount) or
  2. Itemize your deductions (add up deductible expenses like medical costs, home mortgage interest, state and local taxes, and charitable contributions).

Last year's tax reform nearly doubled the standard deduction for 2018. In 2017, the standard deduction was $6,350 for a single taxpayer and $12,700 for a married couple filing jointly. For 2018, the standard deduction is $12,000 for single filers and $24,000 for married couples. This means you may see a bigger benefit by claiming the standard deduction rather than itemizing.

Child tax credit

Parents may benefit from the expanded child tax credit in 2018. Tax reform doubled the credit amount from $1,000 to $2,000 for each qualifying child under the age of 17 and increased the income level at which the credit is phased out.

Under the previous law, a married couple filing jointly would start to lose their deduction when their combined income reached $110,000. In 2018, that income threshold almost quadruples to $400,000, meaning many more families should qualify for the credit.2 The new law also made up to $1,400 of the credit refundable.

It also created a second credit for dependents who aren't kids under age 17. This credit is worth up to $500 for dependents, such as elderly disabled parents or children who are 17+.

Education credits

If you have a child headed to college or are pursuing higher education yourself, check out these tax credits available for education expenses.

The American Opportunity Tax Credit3 (AOTC) provides a tax credit for tuition, fees, and course materials required for college attendance. It's worth 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000 of those expenses, for a maximum of $2,500 per eligible student. Up to $1,000 of the credit is refundable, meaning that if your total tax liability is less than the value of the credit, you can get up to $1,000 back from the IRS. The AOTC is only available for the first four years of undergraduate education, and the student has to be enrolled at least half-time.

The Lifetime Learning Credit4 (LLC) is worth 20% of the first $10,000 of qualified education expense, or a maximum of $2,000 per return. There is no limit to the number of years you can claim the LLC – it can even be used for professional degree courses. However, no portion of the LLC is refundable.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) can deliver significant tax savings for low- to moderate-income taxpayers. For 2018, the maximum credit5 ranges from $519 to $6,431, depending on your filing status and how many children you have.

However, there are a lot of complicated eligibility rules6 for claiming the EITC. If you disregard the rules, you can be banned from claiming the credit for up to ten years.

These are just a few of the tax deductions and credits available for 2018. If you believe you might qualify for one or more of these tax breaks, take the time to research the rules for claiming them or talk to a tax professional. If you are eligible, you could drastically slash your tax liability and even qualify for a hefty tax refund.

Learn more about 1099s, 1098s, and other tax forms

Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Internal Revenue Service, "Credits and Deductions for Individuals," accessed Feb. 5, 2019.  Back
  2. Tax Policy Center, “Who Benefits from the Child Tax Credit Now?" accessed Dec. 11, 2018. Back
  3. Internal Revenue Service, “American Opportunity Tax Credit," accessed Dec. 11, 2018. Back
  4. Internal Revenue Service, “Lifetime Learning Credit," accessed Dec. 11, 2018. Back
  5. Internal Revenue Service, “2018 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates," accessed Dec. 11, 2018. Back
  6. Internal Revenue Service, “Earned Income Tax Credit Rules for Everyone," accessed Dec. 11, 2018. Back