Tax breaks you should not mi$$

Last updated: 4/13/2007 1:38:22 PM

There are a number of ways to reduce your tax liability. Some you may be able to take advantage of when doing your taxes. Others can be implemented into a plan to further reduce your taxes in the future. Depending on your particular situation, you may be able to reduce both federal and state taxes.

Reduce your federal taxes

Maximize your TSA contributions—For every $100 you contribute pre-tax to your TSA, you reduce your tax liability by about $20. So, a $2,000 contribution for someone in the 20% tax bracket results in a $400 reduction. This is a great opportunity to reduce your taxes while saving for the future.

Retirement Savings Credit (a.k.a. Savers Credit)—Lower-to-moderate-income school employees may get an extra break if they make contributions to their TSAs. Those qualified receive a federal income tax credit of 10% to 50% on the first $2,000 contributed. This could lower your taxes due or result in a nontaxable cash refund.

You can qualify if your adjust gross income (AGI) is less than $25,000 as a single person, $37,500 as head-of-household, or $50,000 if married and filing joint returns. To get the credit, however, you must file federal taxes using IRS form 1040 or 1040A. Also, if you were a student for part of the year or are taking withdrawals in retirement, you may not qualify. Details are on the 8880 form, available at the IRS Web site, www.irs.gov.

Educator-Expense Deduction—Teachers and other education staff who use their own resources to provide classroom supplies and other supplemental materials may deduct up to $250 of such expenses if they work at least 900 hours during a school year. This deduction is available whether or not the taxpayer itemizes deductions.

Higher-Education Credits and Deductions—Federal tax laws offer some unique tax credits or deductions if you are paying higher-education expenses for yourself, your spouse, or a dependent child. These include the Lifetime Learning Credit, the Hope Credit, the Student Loan Interest Deduction, and the Tuition and Fees Deduction. See IRS Publication 970, Tax Benefits for Education, for details.

Reduce your state taxes

Saving for college—Contribute to Wisconsin's 529 college education plan, EdVest, and you can deduct up to $3,000 per beneficiary per year from your Wisconsin taxable income.

Long-Term Care Premium Deduction—If you or your spouse have long-term care insurance, you may be able to deduct all or a portion of your premium costs on your Wisconsin tax return. To determine the amount of your deduction, you must complete the Long-Term Care Insurance Worksheet found in the Wisconsin state tax return instructions.

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