7 Lesser-Known Tax Credits & Opportunities

Many people are familiar with common tax-saving opportunities. However, there are several lesser-known deductions and credits that can help you maximize your refund. We’ve listed some of these overlooked opportunities you may be eligible for. Taking advantage of these tax breaks can lessen your tax liability and potentially provide a larger refund.

1. Child and Dependent Care Tax Credit

The child and dependent care tax credit is designed to assist individuals and families who incur childcare or dependent care service expenses. This credit can be particularly beneficial for working parents or those caring for a disabled spouse or dependent. To qualify for the credit, you must meet certain eligibility criteria, including:

• You must have earned income, such as wages, self-employment income, or taxable scholarships.
• You must have incurred expenses for qualifying childcare or dependent care services.
• The care must have been provided for a child under 13 or a dependent physically or mentally incapable of self-care.
• You and your spouse, if applicable, must identify the care provider(s) on your tax return. This includes the care provider’s name, address, and identifying number (SSN or EIN).

The amount of the credit is based on a percentage of your qualifying expenses up to certain income limits. For 2023, the maximum amount of care expenses you’re allowed to claim is $3,000 for one person or $6,000 for two or more people. Also, the credit is non-refundable, meaning it can reduce your tax liability but cannot result in a refund if it exceeds the amount you owe. However, if you have unused credits, you can carry them forward to future tax years.

2. Lifetime Learning Tax Credit

The lifetime learning credit is a valuable tax credit that can help offset higher education costs. Unlike other education credits, such as the American Opportunity credit, the lifetime learning credit is available for an unlimited number of years, and it is available for both undergraduate and graduate courses. To qualify, you must meet the following requirements:

• You must have paid qualified education expenses for yourself, your spouse, or a dependent.
• The expenses must have been incurred at an eligible educational institution.
• You must have a modified adjusted gross income (MAGI) below a certain limit.

The amount of the credit is calculated as a percentage of your qualified education expenses, with a maximum credit of $2,000 per tax return. It's important to note that the lifetime learning credit is non-refundable and can only reduce your tax liability.

3. Adoption Credit

The adoption credit is available to individuals who have incurred qualified expenses while adopting a child. This credit can help offset the costs associated with adoption, including fees, court costs, and travel expenses. To be eligible for the credit, you must meet the following requirements:

• The adoption must be finalized.
• The expenses must be directly related to the adoption.
• The expenses must be reasonable and necessary.
• The adoption must not be for a stepchild or your spouse’s child.

The amount of the credit can vary depending on the year in which the adoption was finalized and the expenses incurred. For 2023, the adoption tax credit can be up to $15,950. When going through the adoption process, it's important to keep detailed records of your expenses to ensure you claim the maximum allowable credit.

4. Educator Expense Deduction

The educator expense deduction allows eligible educators to deduct up to $300 of qualified expenses paid out of pocket. This deduction is available to teachers, instructors, counselors, principals, or aides who work in a school for at least 900 hours during the school year. Qualified expenses can include classroom supplies, books, computer equipment, and other materials used in the classroom.

To claim the deduction, educators must meet certain eligibility requirements and keep detailed records of their qualifying expenses. This deduction is taken "above the line," meaning you can claim it even if you don't itemize your deductions.

5. Student Loan Interest Deduction

The student loan interest deduction allows individuals to deduct up to $2,500 of interest paid on qualified student loans. This deduction can be particularly beneficial for recent graduates repaying student loans. To qualify for the deduction, you must meet the following requirements:

• You must have paid interest on a qualified student loan.
• You must have a modified adjusted gross income (MAGI) below a certain limit.
• You cannot be claimed on someone else's tax return as a dependent.

To determine the amount of student loan interest you paid during the year, refer to your Form 1098-E, which should be provided by your loan servicer.

6. Nebraska Property Tax Credit

If you are a resident of Nebraska, you may be eligible for the Nebraska property tax credit. This credit is designed to provide relief to individuals who own or rent residential property in the state to qualify for the credit, you must meet certain eligibility criteria, including:

• You must be a Nebraska resident.
• You must have owned or rented residential property in Nebraska.
• You must have paid property taxes or made rent payments that include property taxes.

The amount of the credit is based on a percentage of your property taxes or rent payments and is subject to certain limitations. You must complete Schedule I of your Nebraska income tax return to claim the credit. You will need to look up the amount of your credit for each year.

7. Nebraska 529 College Savings Plan Deduction

The Nebraska 529 college savings plan deduction is available to Nebraska residents who contribute to a Nebraska 529 college savings plan. You are allowed to deduct up to $10,000 per tax year ($5,000 for married individuals filing separately) for contributions made to a plan. To qualify for the deduction, you must meet certain eligibility criteria, including:

• You must be a Nebraska resident.
• You must contribute to a Nebraska 529 college savings plan.
• You must be the account owner or the beneficiary of the plan.

It's important to note that contributions made to out-of-state 529 plans do not qualify for this deduction. The Nebraska 529 college savings plan deduction can help you save for future education expenses while also providing a valuable tax benefit.

How Lutz's Accounting Servies Can Help

It's beneficial to consult with a tax professional or refer to the official IRS guidelines to ensure you meet all the eligibility requirements to properly claim these credits and deductions. By taking advantage of these lesser-known opportunities, you can maximize your tax savings and potentially receive a larger refund. Please contact us if you have any questions about these credits.