It's another Friday the 13th, but the last thing we need in March 2020 is more stuff to worry about.
So what's better help take our minds off the very scary COVID-19 pandemic and all its ramifications — like no sports to divert our attention! — than taxes?
Yes, taxes. Really.
There's no word yet as to whether the April 15 filing deadline and any due tax payments will be extended. But there still are a lot of tax breaks that could help out whenever the Internal Revenue Service tells us when it finally wants our tax year 2019 Form 1040s.
While we wait, here are 13 tax breaks to brighten up this Friday the 13th and any other tax-related day.
Schools, from elementary to high school to colleges, are shutting down, at least for a while, due to the coronavirus. But eventually classes will resume. Here are some tax breaks to help cover many educational costs.
1. American Opportunity Tax Credit (AOTC): This tax credit helps first-time college students (and their families if Mom and Dad claim it) cover some of the costs of the student's first four years of college or other higher education. There are income limits as to who qualifies for the AOTC, but if you can claim it, it could provide a tax credit, which is a dollar-for-dollar reduction in any tax you owe. Even better, it's a partially refundable credit, meaning if you wipe out your tax bill with it, the excess comes to you as a refund. In the AOTC's case, up to $1,000 of the overall $2,500 credit is refundable.
2. Lifetime Learning Credit: This tax credit is for anyone, not just the new students claiming the AOTC, looking to expand their knowledge. Again, there are restrictions based on earnings, but if you go back to college or even take a few courses to buff up your work-related skills, the Lifetime Learning credit could help shave your tax (you noted "credit" in the name, right?) by as much as $2,000 per tax return. Alas, it's not refundable.
3. Student loan interest deduction: Lots of students take out loans to cover colleges costs. This tax break, which is an adjustment to income found on Form 1040 Schedule 1, lets eligible taxpayers claim up to $2,500 interest on these educational loans. And yes, it's still called a deduction because the popular moniker for this tax break and many other similar ones was above-the-line deductions when they previously were listed at the bottom of the long Form 1040, just above the page's final line where adjusted gross income was entered.
4. Tuition and fees deduction: This is another above-the-line deduction. Here you can again claim up to $4,000 of specified schooling costs. Like the loan interest deduction, it reduces your income amount, which generally lowers your eventual tax bill.
5. 529 college payment plans: These education savings plans, named after the section of the tax code that created and governs them, have long been a popular tax-favored way for families to pay college costs. 529 plans are offered and administered by all 50 states and Washington, D.C. The account earnings grow tax-free and there's no tax due when the money is used to pay for IRS-approved education expenses, such as the costs of accredited colleges, universities, vocational schools and trade schools.
Plus, thanks to changes under the Tax Cuts and Jobs Act (TCJA), up to $10,000 per student per tax year from a 529 plan also can be used to pay elementary or secondary school tuition. This includes tuition for public, private and religious schools. And any unused 529 plan money can be rolled over into Achieving a Better Life Experience (ABLE) accounts.
6. Coverdell education savings account (ESA): This is an older education tax break, but it's been tweaked a bit to make it more beneficial. Now in addition to covering qualified higher education expenses, Coverdell ESA money can be used to pay for certain elementary and secondary education expenses.
Many of the education tax breaks obviously apply to youngsters' learning. But there are other child-related tax benefits not connected to school that you don't want to miss.
7. Dependent care credit: Ask any mom or dad about the cost of raising a family and they'll tell your that one of the biggest expenses is paying for someone to watch after their youngsters while the parents are at work. The Child and Dependent Care Credit can help. This tax break (note that it's one of those valuable tax credits) covers up to $3,000 spent on care for one child or up to $6,000 for the care costs two or more kids. The actual tax credit you can get is a percent of those care costs based on your adjusted gross income.
And while day camps likely will be shut down due to coronavirus, when these summertime facilities return, those costs count toward the dependent care credit, too.
8. Adoption tax credit: If your family grew thanks to adoption, this tax credit (again, one of those dollar-for-dollar tax benefits) can help cover some of those often extraordinarily high costs. This includes such things as court costs, attorney fees, traveling expenses and other expenditures directly related to adopting a child. For 2019, this could be a tax credit of up to $14,080 per child. If you're in the midst of adopting now, the credit goes up a bit for 2020 to $14,300.
9. Earned income tax credit (EITC): This credit is intended to reduce the amount of tax owed for low- and moderate-income wage earners. Larger EITC benefits are available to eligible taxpayers with children. However, folks without kids also can claim this credit, too.
OK, you're done with school, both your education and that for your kids. In fact, your children are no longer children. They're grown and out of your house (finally!). And you and your spouse are winding down your wage slave years, preparing for retirement. The tax code can help here, too.
10. Retirement savings credit: Even if you're in the last few years of work before retiring, keep socking away cash in your retirement accounts. Those contributions could help you qualify for the Saver's Credit. There are earnings limits here, but if you qualify, the money you put into a an IRS-approved retirement plan, such as a traditional or Roth IRA or a workplace 401(k) plan, could get you a $1,000 tax break.
11. Bigger standard deductions for older, blind filers: Most people claim the standard deduction, especially since the Tax Cuts and Jobs Act (TCJA) greatly increased those amounts. Your exact standard deduction amount is based on your filing status. But a couple of other factors can come into play here. Older and visually impaired taxpayers generally can claim additional standard deduction amounts (starting at $1,650 more) just by checking boxes on Form 1040 or by filing the new Form 1040-SR created especially for senior citizen taxpayers.
12. Sharing your wealth: You had a good job and saved enough for a comfortable retirement. Good for you, tinged with a bit of jealousy! In fact, you're well enough off that you can afford to make some moves to lower any potential estate tax issues. A favorite one of wealthy individuals is giving away some assets early, while they're still around to get in-person thanks from future heirs. For the 2019 and 2020 tax years, you can hand out as much as $15,000 — that includes cash or assets worth that amount — to anyone you please.
Folks tend to gift within their families, but if you have dear friends or perhaps a favorite tax blogger (just sayin') with whom you want to share your wealth, that's allowable, too. There's no tax ramification for the gift recipients when you use this method to reduce your eventual taxable estate. And if you're married, you and your spouse each can give $15,000 for both the 2019 and 2020 tax years to anyone, even the same persons.
There's also a special way for grandparents to give, sort of, this annual exclusion amount to their grandchildren. Payments made directly to qualified educational programs do not count against the annual gift tax exclusion amount.
13. Donating retirement money: Got even more retirement cash and still feeling generous? Then consider transferring your required minimum distribution (RMD) to a qualified nonprofit.
RMDs are amounts the IRS says you must take out each year. For 2019, that meant when you turned 70½. If you did hit that birthday milestone and didn't take your RMD last year, you have until April 1 to do so. Starting this year (2020), you don't have to take RMDs until you reach age 72.
You still have to make the withdrawals even if you don't need the money for daily expenses. In such circumstances, you can opt to have up to $100,000 of your RMD directly transferred, via what is known as a Qualified Charitable Distribution or QCD, to an IRS-approved charity. You can't deduct a QCD, but the donations meet RMD rules, meaning the money isn't included in your adjusted gross income and therefore you don't own tax on it.
I hope your Friday the 13th isn't too scary and that at least a few of these 13 positive tax transactions can help make this and other days less frightening.