Tax Day was looming when an elderly lady appeared at the IRS requesting a thick stack of tax forms.
“Why so many?” I asked.
“My son is stationed overseas,” she said. “He asked me to pick them up.”
“You shouldn’t have to do this,” I told her. “It’s the base commander’s job to make sure the troops have the forms they need.”
“I know,” she replied. “I’m the base commander’s mother.”
Tax Credits, Income and Deductions
Though there are several ways to lower the amount of money you pay the IRS, they can be summarized under three basic categories:
- Adjusted Gross Income (AGI) – All your income, from all sources – minus adjustments for tax relief. With enough knowledge, and choosing the right adjustments, you may be able to reduce your AGI to receive tax relief. These adjustments can include student loan interest, traditional IRA or 401K contributions, paid alimony or paid child support
- Deductions – Between standard deductions, for which almost anyone is eligible, and itemized deductions, you may be able to substantially lower your tax debt pay out. These forms of tax relief may include personal property taxes and medical expenses, as well as mortgage interest, tax preparation fees and charitable donations, to name a few.
- Credits – Tax credits lower your tax liability dollar-for-dollar. Earned Income Credit (EIC) is a common tax credit for those with a qualifying dependent, and the Hope Credit and Lifetime Learning Credit are two well-known credits for college students. You may also be able to receive tax relief by saving for your retirement or if you have adopted children.