Tax breaks and hefty reductions are typically for the rich, right? It seems as though the wealthy benefit the most from when it comes to lightening the burden on tax bills. The reality is; there are plenty of tax breaks for the middle class American to tap into.
People are literally losing money to tax expenditures. Here are 7 middle class tax breaks not to be missed:
1. Saving for Retirement
Anyone with earned income (meaning income from work rather than investments) can contribute to a traditional IRA, but not everyone who contributes can claim a tax deduction. That’s a no-no for the rich if they’re covered by a retirement plan at work.
2. Be Credited for Saving
If you are single and have adjusted gross income of $28,250 or less, or you are married and have AGI of $56,500 or less, you can make out even better on a 2011 IRA or 401(k) contribution through the Saver's Tax C
3. Rewards for Working
The government provides an incentive for people to work: the Earned Income Tax Credit. For 2011, the maximum EITC ranges from $464 to $5,751, depending on your income and how many children you have.
4. Tax Break for New Families
With a new baby also comes a $1,000 child tax credit to lower- and middle-income earners, and this is a gift that keeps on giving every year until your dependent son or daughter turns 17. You get the full $1,000 credit no matter when during the year the child was born (which is why people make gags about speeding deliveries as the New Year approaches).
5. No Capital Gains Tax
Long-term capital gains (and qualified dividends) are taxed at a maximum rate of 15% -- a bargain by historical standards. That's why some people get so exercised about a rule that allows hedge-fund managers to pay tax at the capital-gains rate rather than at rates for ordinary income, which top out at 35%. But investors in the two lowest income tax brackets will pay no tax at all on their capital gains and dividends.
6. Student Tax Breaks
The 'American Opportunity Credit is available for up to $2,500 of college tuition and related expenses paid during the year. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). The credit is phased out for taxpayers with incomes above those levels.
7. The Lifetime Learning Credit
If you want to get additional education -- for virtually any reason and at virtually any school -- you can tap the Lifetime Learning Credit. The credit is calculated as 20% of up to $10,000 of qualified expenses, so you can get back $2,000 per year.
Tax break tips from Kiplinger