If you earn a high-income, you are aware that some tax breaks are either reduced or eliminated as your adjusted gross income increases. Tax breaks that are available to just about everyone are:
Credit for Overpaid Social Security Taxes: If you had two jobs last year and earned more than $110,000, then you probably had too much withheld for Social Security Tax. Your credit will be for the amount you contributed beyond $4,624, which represents the 4.2% Social Security tax based on a maximum salary of $110,100. To get the money back, just report the overpaid amount on Form 1040, line 69.
Deducting Alimony Payments to Your Ex: You can claim a full write-off of your alimony payments on line 31a on page one of Form 1040.
Writing off Your Gambling Losses: Uncle Sam will allow you to deduct your losses up to the amount you have won during the year on Schedule A, line 28, assuming you itemize deductions. (Your gross winnings are taxed as regular income and should be reported on line 21 of Form 1040.) **But beware: if you claim this deduction, you should have written evidence of your losses, just in case you get audited. So try to dig up some evidence (slot club statements, etc.). In the future, keeping a journal of your daily net wins and losses should do the trick.
Writing off Your Investment Interest: Did you borrow on margin last year? As long as you itemize deductions on your return, you probably can deduct the interest you paid on the account on line 14 of Schedule A. The deduction for the interest paid to carry taxable investments is unaffected by any phase-out rules. However, your investment interest expense deduction generally can not exceed your taxable income from interest, annuities, royalties, and short-term capital gains. That said, any excess investment interest expense can be carried over to the following tax year.
The Dependent Care Credit: This tax break is technically subject to some AGI phase-out rules. If you worked last year and paid someone to take care of your under-age-13 child, you could be eligible for this credit. Keep in mind, if you’re married, both spouses must work, unless one is a student. Additionally, neither of you could have contributed to a child-care flexible spending account (through your employer) to cover the same expenses last year. If your income (married or single) exceeds $43,000 then you can take a credit equal to 20% of your child-care expenses. However, the credit limit is $600, if you have one child, or $1,200, if you have two or more. Thankfully, the definition of child care is generous — it can cover anything from summer day camp to a baby sitter. Claim your credit on line 48 of Form 1040.
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