Three E’s to Know at Tax Time

It seems like there’s so much to learn about the tax world. Many terms are relative, and once you learn them, you can apply them to other parts of the tax code. , for example is a vital definition to know so you can know what parts of your income are taxable. The following three “e” terms will keep you in check come tax time.

Earned Income

Earned income is classified as compensation received for services provided. This compensation can be in the form of salary, commission, and tips. It is separate from income considered “unearned”, like investment interest, dividends, and capital gains.

This credit can help out lower income families (those below $52,497 in 2014) by erasing any tax due as well as offering a refund of a portion of Social Security taxes paid throughout the year. The credit is dependent upon income level and number of qualifying dependents. Single taxpayers without dependents must make less than $14,590 to qualify for the credit, and the maximum worth is $496. Taxpayers with three qualifying children max out at $6,143.

Interest

loans may have been your only option when it came to paying for your education. Now that you are repaying those loans, you should know that interest you’ve paid on those loans can be deducted as an adjustment to your income, regardless of whether you take the standard deduction or chose to itemize. The loan debt must be due to the payment of higher education expenses for yourself, a spouse or a dependent. While the interest deduction can account for up to $2,500, there is a deduction phase out at higher income levels. The deduction is lessened for those with AGI’s between $60,000 and $75,000 filing single, or $125,000 to $155,000 for joint filers.