These 7 tax loopholes could save you thousands

Five Commonly Overlooked Tax Deductions

Regardless of your income, there are money-saving tax loopholes available to you. Some loopholes apply to everyone but vary in helpfulness depending on your annual salary. Here's a list of tax loopholes by income level that can help you out.

Read: 10 Commonly Missed Tax Deductions

Low-Income Tax Loopholes

"Most tax loopholes come in a form of tax credits which are geared toward the low-income earners," said Argel Sabillo, co-founder of Levee, a mobile tax app. "Credits were created to help taxpayers ease the burden of tax, especially for those who have dependents." Two types of credits exist: Refundable credits allow taxpayers to receive refunds even when they have zero tax liability. Non-refundable credits allow taxpayers to reduce their tax amount due, but cannot increase a taxpayer's refund. Low-income earners are eligible for both types, including the following three credits.

American Opportunity Tax Credit

The American Opportunity Tax Credit is an educational tax benefit; it is the replacement and expansion of the existing Hope Credit and can be claimed through tax year 2017. It applies to the first four years of college educational expenses, including tuition, books and other supplies. The credit is worth up to $2,500, but its most attractive feature for low-income families is the fact that up to $1,000 is refundable if you don't owe any taxes whatsoever.

Saver's Tax Credit

The saver's tax credit — formally known as the retirement savings contributions credit — was designed to help lower-income families contribute to retirement plans. The first $2,000 of contributions to an individual retirement account or 401k can be written off with this credit. Whether you can claim the credit depends on your income and filing status.

The rules for claiming the saver's credit are:

  • If you are filing as single, the limit is $30,500 in 2015 and $30,750 in 2016.
  • If you are filing as the head of household, the limit is $45,750 in 2015 and $46,125 in 2016.
  • If you are married filing jointly, the limit is $61,000 in 2015 and $61,500 in 2016.

The maximum joint credit is $1,000 — $2,000 if married filing jointly — but other credits and deductions can greatly reduce the actual impact that this tax credit might have.

Earned Income Tax Credit

The earned income tax credit is designed specifically with low-income families in mind. The amount of the credit is limited based on income and the number of children in your household. The income limit ranges from $14,820 if you're single and have no children up to $53,267 if you're married filing jointly with three or more children.

For 2015, the maximum amount of earned income tax credit is:

  • $6,242 with three or more qualifying children
  • $5,548 with two qualifying children
  • $3,359 with one qualifying child
  • $503 with no qualifying children

Read: 6 Biggest Tax Law Changes of 2016

Medium-Income Tax Loopholes

In general, phase-out rules make medium-income earners ineligible for a number of credits and deductions. "The upper-middle income earners get the shortest end of the stick when it comes to tax loopholes," Sabillo said. There are some credits and deductions available to medium-income earners, however.

Mortgage Interest Deductions

Filers should itemize mortgage interest if they will have more deductions than the standard deduction amount. "This group doesn't have a lot of deductions available to them," said Sabillo. "The most common — and the largest dollar amount — tax loophole available for this group comes when they purchase a home and claim the mortgage interest deductions, which allows them to deduct the interest portion of their mortgage by itemizing their returns," he said.

For 2015 taxes, the standard deduction amounts are as follows:

  • $6,300 for single filing status
  • $6,300 for married filing separately
  • $9,250 for head of household
  • $12,600 for married filing jointly

Lifetime Learning Credit

This educational tax credit is limited to just $2,000 over the lifetime of the claimant but comes with relatively high income caps — $130,000 if filing jointly and $65,000 if filing single. The tax credit is available regardless of age or use as long as it qualifies as an educational expense.

Child Tax Credit

The child tax credit is worth up to $1,000 per child in your household under the age of 17. The child must be claimed as a dependent on your taxes, be a U.S. citizen, and be living with you. The credit is phased-out depending on your filing status and adjusted gross income.

You might qualify for this credit if your AGI is less than the following amounts:

  • $75,000 for single filing status
  • $55,000 for married filing separately
  • $110,000 for married filing jointly

Retirement Savings Accounts

The tax benefits found in retirement plans are huge. The most common are the pre-tax contributions made to 401k accounts and IRAs, which reduce the total taxable amount claimed. Other benefits include tax-deferred growth that allows middle-class families to save for retirement more efficiently. In the case of a Roth IRA, contributions are taxed as they are made, but withdrawals are not taxed.

High-Income Tax Loopholes

Even high-income earners can take advantage of tax loopholes. Two in particular are useful: one to help grow savings faster, and one to increase tax deductions.

Capital Gains Tax

Although the capital gains tax loophole is available for all income levels, it benefits high-income earners — filers in the 25-percent-or-higher tax bracket — the most. This loophole is among the most common — and the most controversial — for high-income earners, Sabillo said.

The capital gains tax loophole is so beneficial to high-income earners because the tax on long-term capital gains and dividend income is only 15 to 20 percent, depending on their income level — as opposed to the tax rate of at least 28 percent on ordinary income. This means that investment income is taxed at a much lower rate than earned income, which has a tax rate of at least 28 percent. Thus, the capital gains tax rate allows wealthy families to grow their investment savings at a much faster pace.

Read: 30 Tax Mistakes the Rich Never Make

Mortgage Interest Deductions

The same deduction that is a loophole for middle-income earners can also be a boost for high-income earners when it's time to file taxes. If a filer will have more deductions than the standard amount for his filing status, he can itemize his mortgage interest and have it counted as deductible on his tax return. A taxpayer who owns a multi-million-dollar home and who pays interest on a large mortgage will be able to deduct more for their mortgage interest than a taxpayer who pays interest on a $350,000 mortgage.

This article originally appeared on These 7 Tax Loopholes Could Save You Thousands

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These 7 tax loopholes could save you thousands

"It's only January, I have plenty of time!"
You're relaxed, you're casual, what even are taxes anyway? You don't care! It's so far away that filing taxes isn't even remotely on your radar, to be honest.

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"The imminent act of filing is upon me and I literally have nothing ready..."
Tax season is now approaching and that creeping anxiety about getting everything done on time is starting to set in. It's essentially biting at your heels and you know you have to get moving.

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No words. Just emotional paralysis.
You're screwed. You need to start doing your paperwork but you physically do not know where to even begin. It's time. It's happening.

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That anxiety you felt creeping in earlier? Now it's full-fledged onset. This stage is often accompanied by screaming out loud, pulling hair, crying, etc.

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"Wait, did I get all of my papers in? Did I check that one box correctly? Does it look like I'm trying to evade some of these taxes? What if I go to jail? Can I go to jail for that? WHO WILL FEED MY DOG WHEN I AM IN JAIL?!"

It's like handing in an exam in school and wishing you could grab it back and double check your answers one more time.

Who was that celebrity you heard about that went to jail for tax evasion? Because now you're convinced that's totally going to be you.

Spoiler alert: as long as you did everything to the best of your knowledge and ability, you probably won't go to jail. And even if you do, you'll find someone to walk your dog.

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"I got this, I'm almost done, a few more papers and I'm in the clear. I just have to pound through the rest of it. Go me!"

"Go you" is right! Now you're on cruise control and you're on track to get everything done well and on time. You're unstoppable in the delight of the world that is tax filing.

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"Thank god that's over with, now I can relax! What to do with all this stress-free free time!"
Finally, relief. Your papers are filed and sent out into the universe. It's off your back at last. Now on to more important things, like Netflix.

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"When is my return coming? Is this going to be my life for the rest of my life? Yep, it is. So about that return..."
Now, you wait. You want that money. And the inevitable truth that your life will now be a neverending cycle of filing taxes and waiting for your return.

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"SCORE my return was so much better than I expected! I'm buying a new dress. Or five. Probably five, why not?"
You're on a total life-high now. The possibilities of what you can spend your return on seem endless and even if you don't, having a nice bonus hunk of cash in your pocket feels pretty good. It made all of that stress completely worth it.

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"Honestly filing wasn't even that bad this year. And now I don't have to think about it anymore. Well at least not for another year. But no use in worrying about that now!"
Alas, acceptance. You know you'll fall victim to the vicious cycle again when next year rolls around. But truthfully, you wouldn't have it any other way. Okay, you obviously would. But you'll never change your procrastinating ways!

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