If you belong to the shrinking middle class and you complain about tax breaks being for high-income earners only, then you have not been discussing the numerous tax breaks available for your income class with a trusted Liberty Tax Service consultant. You should jump at the opportunity to get a break via tax breaks and, thus, add to your savings.
Get Saver’s Tax Credit
You can qualify for the Saver’s Tax Credit if and when you fall into one of these categories:
- You are single with an adjusted gross income (AGI) of $30,500 or less; or
- You are married with an AGI of $61,000 or less
The credit is of particular importance when you are making retirement contributions. This is because you can claim tax credits worth between 10 percent and 50 percent of the amount contributed but only up to the $1,000 maximum credit; the limit is at $2,000 for joint filers (i.e., married couples who file their income tax returns jointly). The credit applies to contributions to an employee plan, such as 401(k) and (403(b), as well as for contributions made to traditional IRA, Roth IRA, or SEP IRA.
If you have a lower income, you will enjoy a higher percentage and, thus, a higher amount that you can get back through the Saver’s Tax Credit. Furthermore, the credit will reduce the amount of taxes that you owe to the government, in contrast with deductions wherein the amount of income that can be taxed will be lowered but not necessarily the amount of taxes owed. The IRS Form 8880 is the form for this credit.
Savings for Retirement
This is where things can become tricky and, thus, an in-depth consultation with a tax expert is a must for proper and prompt filing. Keep in mind that anyone with an earned income – salaries, wages, and tips, among other income earned from working instead of from passive sources like investments in securities – can make contributions to a traditional IRA.
But here’s the catch: Not everyone who makes contributions to a traditional IRA can claim tax deductions for several reasons. First, you will be limited in terms of the amount that you can contribute per year – just $5,500 or 100% of your earned income, whichever amount if less (i.e., exceptions apply). In case you’re not enrolled in a workplace retirement plan, you are allowed to deduct your IRA contributions regardless of your income but not in other cases.
Indeed, you have so many tax breaks as a middle-income earner that it would be a shame not to take advantage of them. Ask your tax advisor now!