You don't have to make millions of dollars in order to take valuable tax write-offs. The Internal Revenue Service offers valuable tax breaks that just about anyone can take, even people earning less than $48,000 per year. Given that tax breaks -- like education credits and reduced-rate capital gains -- are income-limited, earning less than $48,000 a year can put you in a better situation than taxpayers that earn more.
If you don't own a house or otherwise file itemized deductions, you still get to take write-offs. The IRS lets you claim a standard deduction that essentially cancels out some of the money that you make, letting you take it home tax-free. For 2013, the standard deduction is $6,100 if you're single, $12,200 if you're married and file jointly, and $8,950 if you're a head of household (a single person that takes care of someone else). You also get to write off an additional $3,900 personal exemption for yourself, your spouse, your kids and anyone else that is included in your tax return. If you're married and have no kids, the standard deduction and two exemptions add up to $20,000.
If you're paying off your student loans, the IRS has your back. If your modified gross income is $60,000 or less and you're single, or $125,000 or less and you're married and file jointly, you can deduct up to $2,500 in student loan interest. You can claim this deduction in addition to the standard deduction, which is technically an adjustment to income rather than a deduction.
You may also be able to claim tax credits. The American Opportunity Tax Credit lets you write off your first $2,000 in tuition and 25 percent of your next $2,000 as a credit on your taxes. If you can't claim it because your parents claimed it, you have a four-year degree, or you're not going to school at least half time, you may be eligible for the Lifetime Learning Credit. It lets you take 20 percent of the first $10,000 of tuition or mandatory fees as a tax credit. Both of these are credits, not deductions, so they come off of the tax you pay, not the income that gets taxed. They're also income limited, but you can claim them at an income of $48,000 (or $96,000 if you're married).
Tax-Free Capital Gains
As long as you pay taxes in the 10 or 15 percent bracket, any long-term capital gains that you take are completely tax-free. A long-term gain happens when you sell an investment, such as stock or shares in a mutual fund, that you have held for at least a year. The 15 percent tax bracket only goes up to $36,250 if you're single ($48,600 or $72,500 if you're a head of household or married, respectively), but that's applied to taxable income. After standard deductions, exemptions and any other adjustments, it's relatively likely that you'd still qualify for 0 percent capital gains even if you made $48,000 a year.
When you're making less than $48,000 annually, you can still write off contributions to your IRA. You can also put as much of your at-work income into your 401(k) plan as you want as long as you stay within your employer's limit. When your income goes up, your ability to write off IRA contributions will be limited based on how much you put into your 401(k).
A Few Warnings...
As you look through these write-offs, please note that they're all available based on the 2013 tax year, for which you'll file a return in 2014, and they may change from year to year. It's always best to check with a tax preparer or with the IRS to see what law applies to you at any given time. Also, many of them are only available to you if you can claim yourself as a dependent. If your parents are still claiming you, you might not be able to take them.
- Comstock/Comstock/Getty Images
- What Tax Breaks Are There for Tuition, Room & Board?
- Can Graduate Students Still Be Claimed as Dependents on a Tax Return?
- Can You Still Get Tax Credit for College if You Are Unemployed?
- Can I Claim My Son's Education Expenses When He Is Not a Dependent?
- Tax Credits for Going Back to School
- Can I Transfer My RMD to a Roth IRA?
- Things That Will Lower Your AGI
- How Much of My Classroom Expenses Can I Write Off as a Teacher?