Tax Planning Myths
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TAX PLANNING 101: Ideas for Reducing Taxable Income and Maximizing Tax Credits Part 2

We are continuing to bust the myth that significant tax savings are only applicable to the rich and wealthy. Countless moderate-income earners are utilizing the same strategies to reduce their adjusted gross income (AGI) and overall tax liability. So, if lowering your AGI is considered “above the line” deductions, are there then “below the line” deductions to can be implemented as well?

The answer is “yes”!

Even with higher standard deductions introduced by the Tax Cuts and Jobs Act (TCJA), other deductions can still be discovered. Tax credits are also available, resulting in an end-of-year refund.  In part two of this article, we will discover key tips for reducing your taxable income and maximizing your credits.


First, we will cover a couple of tax deductions for homeowners:

  • Mortgage Interest Deduction. There is a deduction for Qualified Residence Intertest (QRI), which is the interest paid on debt secured by your main residence as well as an additional residence. Home equity loan interest is also deductible if it meets the definition of acquisition debt—if it is used to purchase, construct, or improve your home. 

    TCJA (in effect for tax years 2018-2025) limited the amount of debt covered to $750,000 (or $375,000 for married couples filing separately). If the TCJA tax laws are not extended, in 2026 the limitation will go back up to $1 million. See Internal Revenue Code §163 for more details.
  • Real Estate or Real Property Tax Deduction. These deductions are also readily available under IRC §164. While the price and number of properties have no limitation, your real estate taxes are affected by the state and local tax limitations or SALT for short. Due to the TCJA cap, the SALT deduction cannot be more than $10,000 for joint filers and $5,000 for separate filers on the federal tax return. However, many states have created ways for residents to get additional benefits, such as provisions for pass-through entities. 

Other common deductions include:

  • Capital Gains. The Jobs Growth and Tax Relief Reconciliation Act (enacted in 2008) introduced a 0% tax rate on capital gains for those in lower income brackets. In 2022, you qualify if your taxable income is no higher than $41,674 for single taxpayers or married couples filing separately (or $55,799 for heads of household and $83,349 for married couples filing jointly). 
  • Itemized Deductions. Since TCJA raised the standard deduction amount, fewer taxpayers have been opting to itemize their deductions. While you may not have enough deductions to use Schedule A every year, you might benefit from “bunching” your deductions so that you use the standard deduction one year and itemize the next year. One way to do this is to time your medical expenses or charitable donations so that they fall within the tax year when you are planning to use Schedule A. 

When determining whether bunching deductions or implementing another strategy is right for you, consult a Certified Tax Planner. By discussing your future goals and current responsibilities, you both can work out a plan that works for you.


While tax deductions reduce how much of your income is subject to taxes, tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction in your tax liability.

These benefits are geared toward taxpayers without employer-provided health insurance:

  • Premium Tax Credit (PTC). The Affordable Care Act created a refundable credit for coverage under qualifying health plans. Typically, these plans are purchased from a state or a federal health insurance marketplace. Refundable PTC is available for taxpayers whose income in not more than 400% over the federal poverty line. However, for tax years 2021 and 2022, the American Rescue Plan Act removed this income limitation. Taxpayers who received unemployment compensation in 2021 can also receive special provisions. 

    You can also receive PTC funds in advance and have the amount reconciled when you file your taxes. As per your tax liability, you will either reconcile in a tax return when you get too much money or if you receive too little you can claim it to reduce your liability or increase your refund (whichever applies). Special taxpayer-friendly rules were also introduced during the COVID-19 pandemic. In 2020, any excess PTC received did not have to be repaid, and in 2021, many taxpayers only had to make limited repayments, depending on their income. 
  • Health Insurance Subsidies. Some taxpayers may be able to reduce their modified AGI (or MAGI) to the point where they qualify for free or low-cost health insurance. For example, New York has an essential plan for lower-income taxpayers who do not qualify for Medicaid. 

Another set of tax benefits are available for those who are pursuing higher education:

  • American Opportunity Tax Credit (AOTC). This credit is available for full-time to half-time students in the first four years of their postsecondary education. The maximum allowable credit is $2,500 per eligible student—100 percent of the first $2,000 in qualifying education expenses and 25 percent of the next $2,000 in qualifying expenses. If the credit eliminates your tax liability, up to $1,000 of the credit can be received as a tax refund. To be eligible, taxpayers cannot have above $90,000 in MAGI (or $180,000 for married couples filing jointly). The credit begins to phase out starting at $80,000 in MAGI (or $160,000 for married couples filing jointly).
  • Lifetime Learning Credit (LLC). If you are not eligible for the AOTC, the LLC is available for all years of postsecondary education, as well as courses to acquire or improve job skills. There is no limit on the number of years you can claim the LLC. This credit is non-refundable and covers 20% of eligible educational expenses, with a maximum credit amount of $2,000. The income limit is lower for the LLC with the phase-out starting at $69,000 for single taxpayers (or $138,000 for married couples filing jointly). 
  • Series EE Bonds. Interest on these bonds (if issued after 1989) can become tax-free if they are used to pay for qualified education expenses. Only bonds in the parents’ names qualify, and the income range where the credit phases out is between $83,200 to $98,000 for single taxpayers (or $124,800 to $154,800 for married filing jointly). 

Next, we have tax benefits available to taxpayers with children or other dependents:

  • Child Tax Credit (CTC). Although TCJA eliminated personal exemptions for taxpayers and their dependents, the legislation also increased the amount and eligibility for the Child Tax Credit (CTC). In 2022, the credit offers up to $2,000 per child aged 16 or younger. The credit begins to phase out at $200,000 in MAGI (or $400,000 phase-out limits). An enhanced version of the CTC was also available for 2021 only. 
  • Child and Dependent Care Tax Benefits. Parents and guardians who work (with limited exceptions) may be able to claim this credit. The standard limit for qualified expenses is $3,000 for one dependent and $6,000 for two or more dependents under age 13. The American Rescue Plan Act also expanded this credit for the 2021 tax year. 
  • Credit for Other Dependents (ODC). This credit is available for taxpayers who do not qualify for the CTC. “Other dependents” may include children 18 or older, parents or other qualifying relatives supported by the taxpayer claiming the credit, or dependents living with the taxpayer who are not relatives. Dependents must be US citizens, nationals, or resident aliens and have a Social Security number or ITIN. 

The benefit provides $500 per dependent and is non-refundable. The credit begins to phase out for taxpayers with income above $200,000 (or $400,000 for married couples filing jointly). 

Other tax credits you may be eligible for include:

  • Retirement Savings Contribution Credit. Also known as the “Saver’s Credit,” this can equal up to 50% of your contributions to a retirement plan—a traditional or Roth IRA, elective employer plan (401(k), 403(b), 457(b), SARSEP, or SIMPLE), Achieving a Better Life Experience (ABLE) account, or voluntary after-tax contributions to qualified plans. The income thresholds to receive the maximum 50% credit are $20,500 in AGI for single taxpayers, $30,750 for heads of household, and $41,000 for married couples filing jointly. The Saver’s Credit phases out completely once your AGI exceeds $34,000 (or $51,000 for heads of household and $68,000 for married filing jointly).
  • Exclusion of Gain from the Sale of a Principal Residence. This exclusion is available for homeowners who have owned and used a home as their main residence for two out of the last five years before the property is sold. The maximum exclusion is $250,000 for single taxpayers (or $500,000 for married filing jointly). This exclusion does not currently index for inflation.

With the recent changes in tax law, not to mention all the adjustments with inflation, it may be a struggle to determine which deductions or credits you may be eligible for or that even apply to you. Discussing your options with a Certified Tax Planner can ensure that you are able to identify the tax benefits that will make the most difference on your return.


Example #1: The Premium Tax Credit. Jorge and Henrietta usually contribute the maximum amount to your Roth IRAs. After talking with a Certified Tax Planner, they discovered that they could reduce their tax liabilities and enhance their eligibility for lower health insurance premiums by recharacterizing their Roth IRA contributions as traditional IRA contributions.

For tax year 2019, Jorge and Henrietta each contributed $7,000 to their Roth IRAs. By recharacterizing these contributions to a traditional IRA, they reduced their AGI by $14,000 and reduced their overall federal and tax liability by $6,800 including the PTC.

Example #2: Health Insurance Subsidies. Rohan’s primary tax reduction goal was to lower his AGI below the threshold for New York state’s essential health insurance plan, which would only cost $20 per month. Rohan did not previously make contributions to a retirement plan, but by contributing $7,000 to a traditional IRA and $2,050 to his SEP (Simplified Employee Pension Plan), he reduced his AGI by $9,600. Erik was both able to qualify for the essential health insurance plan and to reduce his combined federal and state tax by $2,600.

Example #3: Itemized Deductions. Mark and Anna saw their combined AGI increase because of estate-related distributions and a Roth IRA conversion. After receiving a significant inheritance, they were interested in increasing their charitable giving. By strategically planning a combination of direct gifts and a Donor Advised Fund, they were able to “bunch” their giving as a large, itemized deduction and offset much of their additional income. 


Tax codes offer a multitude of ways to minimize your taxes regardless of what tax bracket you are in. As you now see, tax planning is not just for the wealthy. It is for anyone who wants to keep a little more money in their pocket. And we’ve only scratched the surface on the tax breaks available for small business owners!

Click here to find a local Certified Tax Planner near you to see how many new deductions or credits you could be qualified to take, with a little proactive planning. You might be pleasantly surprised!
Click here to read Part 1 of this article for more tax savings ideas.

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