You know it’s good — but what is it and how do you get it? A “tax break” is a broad term referring to any type of savings on your tax liability, which can include tax exemptions, deductions, credits or other incentives. All of these things can be subtracted from your gross income, reducing the amount of money you’re expected to pay taxes on when filing your return.
Common Tax Breaks
That’s all well and good, but how do you capitalize on the tax breaks available to you? Here are a few of the most common tax breaks taxpayers claim on their returns:
- Dependency exemption: If you are financially responsible for any children or other qualified dependents, you can deduct $3,700 from your taxable income for each one (as of 2011).
- EITC: Some lower-income individuals with dependents qualify for the Earned Income Tax Credit, which helps to reduce their overall tax liability.
- Charitable deduction: For taxpayers who choose to itemize, rather than claim the standard deduction, there are a number of deductions they can claim, like the charitable deduction. If you donate goods or money during the tax year to a qualified organization, you can subtract the value of that donation from your taxable income.
These are just a few of the many tax breaks that exist. Be sure to learn more about the various tax deductions available so you can get a bigger refund this year.