Tax credits are oft-sought but not oft-claimed enough. This is due to taxpayers generally overlooking what’s available, or simply being out of the loop. As the rule goes, the more tax credits you claim, the less tax liability you’ll have. Credits are more impactful than deductions because they lower your taxable income, so they deserve special attention. Knowing this, the IRS characterizes tax credits differently. For example, in some cases, your reduced tax liability is eligible for a refund, in others, it’s not. Further, some tax credits are limited by higher incomes or are phased out altogether. Read our tips below for upping your tax credit and therefore your chances to receive a nice check from the IRS.
We have 9 for you. They are the heavy hitters, and the most widely applicable. We recommend considering each and every one – we bet at least a few are up for grabs. Below are the highlights; refer to our other tax credit tips for further information.
Earned Income Tax Credit – This tax credit is for those with low to moderate incomes, and it’s a big help. The amount varies by income, how many dependents you’re claiming, and how you file, but the amount can be worth up to $6,242. It’s the most lucrative, but most people who qualify don’t claim it.
Child and Dependent Care Credit – Worth as much as $2,100, you are eligible if you paid for someone to care for your child (under 13) to allow you to go to work or school. You can also use this credit to claim child care expenses, ranging from up to $1,050 for one child and $2.100 for two or more.
American Opportunity Tax Credit – If you’re enrolled in an education program that leads to a degree or other credential, this credit can be applied towards qualified expenses related to your education. Take advantage for up to four years with a maximum of $2,500 in credit. If you’re enrolled in education but don’t qualify, see the Lifetime Learning Credit.
Other top credits include the Advanced Premium Tax Credit, designed to help those under certain income levels to pay for their insurance premiums when purchasing through Healthcare.gov; Savers Credit for those with low to moderate income that are contributing to an eligible retirement plan; Child Tax Credit for generally caring for a child that is a relative under 17; Credit for the Elderly or Disabled for those 65 and older or retired and permanently disabled; and energy credits for energy efficient appliances, although these are constantly changing.
Tax credits expand across most facets of life – family and home, education, consumption, and more. In addition to the next piece of advice, examine your current circumstances, from large to small. This will take some time, but once you determine your financial input and output, lifestyle, habits, and so on, comprehensively, it will become less of a hassle in years to come, assuming you don’t have several large changes per year. But if you do, you’ll know to find out how these changes will apply to the tax credits you qualify for, or unqualify for.
When you understand how each facet of your life impacts your taxes and therefore, potential tax credits, it’s time to do some research. The tax code changes every year, so keeping up on what’s new, what’s phased out, and what requirements have changed is important. It’s also key to continuously research throughout the year as your making financial and purchasing decisions, like if you’ll decide on an electric car, or if you’ll pursue further education.
The above research and evaluation may seem too daunting for some, which is why we recommend bringing in a tax professional, especially if your income and circumstances are at least somewhat complex. It’s a tax professional’s job to know what tax credits are available, and how this changes year to year. Take some of the weight off of your shoulders and enlist their help for the premium tax credit.
Can you envision your taxable income getting lower already? Break out the Excel spreadsheet and find the tax credits that fit you.
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