15 Tax Credits and Deductions That Could Save You Thousands

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CREDIT WHERE IT'S DUE

As the deadline to file 2016 tax returns approaches, some taxpayers may be scrambling to find last-minute deductions or credits. It may be too late in some cases -- many of the "tricks" that reduce taxes must be executed before Dec. 31 -- but some tax-savings tips still work. Remember that tax credits are much more valuable than deductions, because each dollar in credit equates to one less dollar in taxes paid. Deductions reduce taxable income, so each dollar in deductions likely offsets taxes by 10 to 39.6 cents, depending on the tax bracket.

Related: 10 Things You Can Write Off Your Taxes When Self-Employed

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AMERICAN OPPORTUNITY TAX CREDIT

The American Opportunity Tax Credit can be claimed by eligible students who have at least half-time status at an accredited school. It's available only during the first four years of post-secondary education and is worth up to $2,500 in tax credits: 100 percent of the first $2,000 in expenses plus 25 percent of the next $2,000. Schools should send students a 1098-T, which shows the amount paid last year in tuition and fees. The tax credit can be applied to tuition, books, and supplies.
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LIFETIME LEARNING CREDIT

While the American Opportunity Tax Credit is limited to certain students, the Lifetime Learning Credit can be claimed by anyone taking classes to acquire or improve their job skills. Even students enrolled in just one class are eligible. The credit is limited to 20 percent of the first $10,000 in expenses ($2,000 is the maximum) and can be used to offset the costs of tuition, fees, books, supplies, and equipment paid to the school.
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CHILD AND DEPENDENT CARE CREDITS

Parents can claim a child care credit if they paid someone to care for their children while they were working or looking for work. It also applies to the cost of a caretaker for a qualified disabled spouse or adult dependent living in the same house. The credit offsets 20 percent to 35 percent of allowable expenses depending on the taxpayer's adjusted gross income up to $3,000 for one dependent or $6,000 for two or more.
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EARNED INCOME TAX CREDIT

The Earned Income Tax Credit is available to low- and moderate-income taxpayers with "earned income," such as wages, salaries, or self-employment income (but not Social Security, unemployment, or investment income). Taxpayers must also have a valid Social Security number and meet a short list of other criteria. The credit is worth $506 to $6,269 depending on filing status.
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PREMIUM TAX CREDIT

Individuals and families who bought health insurance from a government-run marketplace may be eligible for the Premium Tax Credit. The value depends on income and family size, the federal poverty line, and the premiums paid. Taxpayers may choose to receive this credit in advance to offset monthly premium bills. Those who claim too much throughout the year must pay back the difference at tax time, but those who receive too little can claim the remainder when filing.
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SAVERS CREDIT

The Savers Credit rewards people with low and moderate income who contribute to a qualified retirement account. Taxpayers can get a credit for 10 percent, 20 percent, or 50 percent of the first $2,000 contributed, depending on income and family size. To get the minimum 10 percent, the maximum allowed income is $30,750 for single filers, $46,125 for the head of a household, and $61,500 for joint filers in 2016.
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MORTGAGE INTEREST DEDUCTIONS

Homeowners likely know they can deduct the interest paid to a mortgage lender on a loan up of up to $1 million ($500,000 if married and filing separately) for buying, building, or improving a primary or secondary home (but not a rental). Qualified mortgage insurance premiums could be deductible as well. Additionally, taxpayers may be able to deduct interest on $100,000 (or $50,000 if married and filing jointly) of home equity debt regardless how the money is spent.
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MORTGAGE INTEREST CREDIT

Taxpayers who receive a qualified Mortgage Credit Certificate from a local or state government may be able to claim the Mortgage Interest Credit. The home must be the taxpayer's primary residence, and the interest payments can't go to a relative. The credit is worth up to $2,000 and unused portions may be carried forward to the following year.
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CREDIT FOR THE ELDERLY OR DISABLED

Taxpayers 65 or older -- or younger but retired or with permanent and total disability -- may be eligible for a credit worth up to $7,500. Taxable income must be below $17,500 (or $20,000 if married and filing jointly) and nontaxable Social Security, pension, or disability benefits must be below $5,000. If both partners qualify and file jointly, the income limits are $25,000 for taxable income and $7,500 for nontaxable benefits.
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IRA DEDUCTION

Regardless of eligibility for an employer-sponsored retirement plan, Americans can open an Individual Retirement Arrangement on their own. A traditional IRA (as opposed to a Roth IRA) is funded with pretax money. This means taxpayers can deduct each dollar contributed from their income for the year. Even if an account is opened and funded in 2017, any contributions made before April 18 (the tax-filing deadline this year) can be credited to the previous year. For 2016, the maximum contribution allowed is $5,500 (or $6,500 for those 50 or older). There are also deduction limitations depending on income and access to an employer-sponsored retirement account.
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SEP-IRA CONTRIBUTIONS

For small-business owners, sole proprietors, and people freelancing on the side, additional types of retirement accounts are available. A Simplified Employee Pension IRA is a traditional IRA with higher contribution limits. As with a traditional IRA, contributions made before the tax-filing deadline (without an extension) can be applied to the previous year.
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SOLO 401(K) CONTRIBUTIONS

Another retirement account option for those with self-employment income is the one-participant 401(k), also known as a solo or self-employed 401(k). Taxpayers may need to apply for a federal Employer Identification Number -- a quick, online process -- to open an account. The paperwork can be a bit complicated, but like a SEP-IRA, a solo 401(k) lets individuals defer more money than a traditional IRA. With a solo 401(k), the taxpayer must set up an account and elect to make a contribution by Dec. 31, but funds needn't be deposited until the tax-filing date (April 18, or Oct. 18 with an extension).
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WORK-RELATED EDUCATION

The self-employed, including those with freelance income, may qualify for additional deductions. For example, educational expenses for workshops, webinars, books, and other material that maintain or improve skills are deductible. Educational expenses that meet the minimum requirements of a trade or business -- or related to getting into a new line of work -- do not qualify.
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CAR EXPENSES

Another commonly overlooked tax deduction lets self-employed people deduct 54 cents per mile driven for business purposes during the previous year. Before taking this deduction, taxpayers should make sure they have a detailed mileage log to back it up. The log should show miles driven, the date, the business purpose of the trip, and the destination. Parking and tolls incurred during business travel are also deductible. However, fees and expenses related to commuting to and from an office aren't deductible.
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HOME OFFICE DEDUCTION

A home office deduction might apply if the home is the primary place of business or a room is used exclusively and routinely for business, including to meet with clients and customers. Taxpayers can use a simplified option to determine their deduction by multiplying the square footage of the room by $5 (if the total size is 300 square feet or smaller). The more complex method involves determining the portion of home expenses, taxes, insurance, and depreciation can be attributed to the home office.