Education Center » Balancing Goals » Eight tax season considerations that could potentially save you money

Eight tax season considerations that could potentially save you money


Adapted from Better Money Habits®

Every year at tax time, Americans leave money on the table in unclaimed federal income tax deductions, overlooked credits and unused tax strategies. Consider the following and consult with your own tax advisor to discover some commonly missed ways you can potentially lower your bill to Uncle Sam—or even end up with a refund.

While the new tax law brings major changes, your tax liability for the 2017 tax year should not be affected. Most provisions won't go into effect until the 2018 tax year.

1. Are you maximizing your retirement contributions?

Consider taking advantage of tax-efficient retirement accounts for which you are eligible to reduce current and/or future taxes.

Current income tax impact

Pre-tax 401(k) contributions are made with pre-tax contributions reducing your current taxable income.1

Traditional IRA contributions are tax deductible if you do not exceed certain modified adjusted gross income (“MAGI”) limits and if you (or your spouse, if married) are not eligible to participate in an employer-sponsored retirement plan, such as a 401(k).1

Future income tax impact

Traditional IRAs and pre-tax 401(k) contributions offer tax-deferred growth potential.

Designated Roth 401(k) contributions2 and Roth IRAs offer tax-free growth potential.3

See the chart below for limits on what you can contribute and income limits.

Contribution limits

Younger Than Age 504

Age 50 and Older

Who Is Eligible

Traditional5 IRA
2017 and 2018 maximum contributions6(deadline for 2017 is 4/17/18; deadline for 2018 is 4/15/19)



Anyone under age 70½ with earned income.

Contributions may be tax deductible for single tax filers earning less than $72,000 (2017).

Contributions may be tax deductible for joint tax filers earning less than $119,000 (2017).

Roth IRA
2017 and 2018 maximum contributions6(deadline for 2017 is 4/17/18; deadline for 2018 is 4/15/19)



Single tax filers earning less than $133,000 (2017).

Joint tax filers earning less than $196,000 (2017).

401(k) Plan
Combined limit for pre-tax and designated Roth contributions (deadline for 2018 is 12/31/18)



2. Did you sell stocks or stock mutual funds?

If you sold stocks or stock mutual funds7 from a taxable account, don’t mistakenly pay extra capital gains taxes on shares purchased with reinvested dividends. One way to ensure you’re calculating your capital gains tax correctly is to keep all your investment account statements, which show how many shares you purchased with reinvested dividends over the life of your account.

3. Have you moved to take a new job?

If you moved during 2017, you may be able to deduct the cost of moving to your new location. To qualify for the deduction, your new job must be at least 50 miles farther from your home than the old job. You must also work full-time for a minimum of 39 weeks during your first year in the new home. Consult the IRS web page about moving expenses for more details.

4. Did you pay mortgage interest payments or points in 2017?

Whether a mortgage is original or refinanced, all or part of the interest you pay may be tax-deductible in two circumstances:

If the loan is for your primary residence or it is for a second home you generally don’t rent out.

If you paid mortgage points (prepaid interest that helps you get a lower rate) on your mortgage, you may be able to deduct those as well. The IRS offers a list of the criteria you must meet in order to deduct mortgage points.

5. Did anyone in your family attend college or graduate school?

If you, your spouse or your dependent child was in college at least half the year, you may be able to take the American Opportunity Tax Credit for up to $2,500 per student. The credit is for tuition and related expenses at eligible educational institutions, and it can be claimed annually for each student’s first four years of study. You can get the full credit if your 2017 modified adjusted gross income is $80,000 or less ($160,000 for married couples filing jointly). The credit is fully phased out for 2017 modified adjusted gross incomes above $90,000 ($180,000 for married couples filing jointly).

You may instead be able to claim the Lifetime Learning Credit of up to $2,000 per tax return, or a deduction of up to $4,000 for qualified education expenses. To document your spending, keep your tuition bills and receipts for school-related books and supplies.

For more information on these and other education-related tax benefits, see the IRS overview of offsetting education costs.

6. Did you pay a caregiver?

If in 2017 you paid for someone to take care of your child under age 13, or another qualifying dependent, you may be able to claim a tax credit for a portion of what you spent. For more on what qualifies a relative as a dependent, see the IRS website.

The tax credit can be up to 35 percent of as much as $3,000 for one child or dependent, or $6,000 for two or more. Depending on your income, that could give you a tax credit of $1,050 for one dependent, or $2,100 for more than one. Your exact tax benefit depends on how much you (and your spouse, if you have one) paid for qualifying care expenses while you worked or sought employment, as well as the amount of your adjusted gross income.

You can still claim the dependent care credit if you use a Dependent Care Flexible Spending Account (FSA) at work, meaning you put pre-tax dollars into a special account you can use to pay for care. Bear in mind, though, that you can’t claim the same expenses for both the credit and the FSA. Note that if you are married, you must file jointly in order to use this tax credit.

7. Did you make your home more energy-efficient during 2017?

For 2017, you can get a credit of up to 30 percent of the cost of acquisition of qualified solar electric property and solar water heaters. The amount of the credit depends on when the property is placed in service. For more information on the credit, see the IRS website.

8. Did you donate to charity?

You may get tax benefits from your charitable donations, so save your receipts whenever possible. If you don’t have all of your receipts, you may still be able to take a deduction for such donations if under $250 and you have proof of your donation in another form, such as cancelled checks, bank statements or credit card statements. Review your cancelled checks, bank statements and credit card bills to jog your memory about donations you’ve made. Review the IRS details on determining the value of donated property.

Filing your tax return is probably not your favorite activity, but try to pay careful attention to commonly missed deductions, credits and other strategies to minimize your tax bill and keep more cash in your pocket.

Learn more and take action

  • Ready to enroll in your 401(k) plan or increase your contributions? If your plan is managed by Merrill Lynch, you can get started right now at Benefits OnLine®. Go to Benefits OnLine >
  • Do you own a home? Learn more about all the ways homeownership can help you reduce your tax bill or increase your refund.
  • For the latest information on recent tax reform changes view our “Washington Update.”

Neither Merrill Lynch nor any of its affiliates or financial advisors provides legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

1 Withdrawals are subject to ordinary income tax. In addition, a federal 10% additional tax may apply to withdrawals taken prior to age 59½.

2 Any earnings on Roth 401(k) contributions can generally be withdrawn tax-free if you meet the two requirements for a “qualified distribution”: 1) At least five years must have elapsed from the year of your initial contribution, and 2) you must have reached age 59½ or become disabled or deceased. If you take a non-qualified withdrawal of your Roth 401(k) contributions, any Roth 401(k) investment returns are subject to regular income taxes, plus a possible 10% additional tax if withdrawn before age 59½.

3 For a distribution from a Roth IRA to be federally tax-free, it must be qualified. A qualified distribution from your Roth IRA may be made after a five-year waiting period has been satisfied (this period begins January 1 of the tax year of the first contribution or the year of conversion to any Roth IRA) and you (i) are age 59½ or older; (ii) are disabled, (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000), or (iv) are deceased. If you take a non-qualified distribution of your Roth IRA contributions, any Roth IRA investment returns are subject to regular income taxes, plus a possible 10% additional tax if withdrawn before age 59½, unless an exception applies.

4 You are treated as being age 50 or older if you will turn age 50 or older at any point during the calendar year.

5 Contributions to Traditional IRA accounts may be tax deductible. The tax laws impose modified adjusted gross income limits on deductibility as shown in the table above.

Generally, married couples filing separately are not entitled to a deduction for contributions to Traditional IRAs. However, if you are married and file separately but do not live with your spouse at any time during the year, your maximum deduction is determined as if you were a single filer.

If neither you nor your spouse is covered by an employer retirement plan, the maximum deduction is either $5,500 or $6,500, depending on whether you are age 50 or over.

6 IRA contributions for 2017 can be made through 4/17/18. You generally have until April 15 of each year to make your contribution for the previous year. If April 15 falls on a weekend or a holiday, the deadline is typically the next business day.

7 Unlike bank deposits, investments are not insured by the FDIC; are not a deposit or other obligation of, or guaranteed by, a bank; and are subject to investment risks, including possible loss of the principal amount invested.

Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation (BofA Corp.).

Investing through your plan involves risk, including the possible loss of principal invested.


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