It’s crazy to think, but many taxpayers every year fail to take advantage of the tax credits they’re eligible for. With April 18 almost here, make sure you’re up to speed on any credits you may be able to claim, as that could make a serious dent in your tax burden or even result in the IRS writing you a nice check.
Credits are more impactful than deductions, which reduce your taxable income — typically, a dollar of a deduction reduces your tax by only about 25 percent.
There are many tax credits people do not take advantage of.
The following are some of the top credits that tax experts like Williams & Kunkel, CPAs say you should be keeping an eye on:
1. Earned Income Tax Credit. This credit, which is geared toward people with low to moderate income levels, is a big one. For those who qualify, the credit can be worth up to $6,242, though the amount varies based on your income, how you’re filing and how many dependents you’re claiming. Even though it’s very lucrative, 1 in 5 people don’t claim it.
2. Child and Dependent Care Credit. If you paid to have someone care for a child who is under 13 years old so you can work or go to school, you may be eligible for this credit, which is worth as much as $2,100.
3. American Opportunity Tax Credit. This credit can be used toward qualified education expenses for students pursuing higher education, only if the program they’re enrolled in leads to a degree or other recognized education credential. The credit is worth up to $2,500 and can only be used for four tax years per student.
4. Lifetime Learning Credit. Like the American Opportunity Tax Credit, this also applies to education expenses and job training. Also, the course or program does not have to result in a degree or certification. With this credit, worth up to $2,000, there is no limit on the number of years you can claim it. However, it can’t be claimed in the same year as the American Opportunity Tax Credit.
5. Advanced Premium Tax Credit. This credit is to help people below certain income limits pay health insurance premiums when they purchase insurance through HealthCare.gov. According to the IRS, the value is based on a sliding scale that takes into account income levels and other factors, such as household size and marital status. When you apply for insurance on the website above, it will estimate what your premium tax credit will be.
6. Savers Credit. This is for people with low to moderate income levels who are making contributions to an eligible retirement plan, such as a 401(k) or individual retirement account. The credit can be worth up to $2,000. Note: the actual amount is calculated based on a percentage of the contributions and varies based on income levels.
7. Adoption Credit. Adopting a child can be reduced by claiming the adoption credit, which is worth up to $13,400 based on adoption expenses. These can include adoption fees, attorney fees, court costs and travel.
8. Child Tax Credit. Depending on your income level, whether you’re single or married and whether you’re filing jointly, you may qualify to earn up to $1,000 in tax credits per child. However, the child must be under 17, a relative, claimed as a dependent on your federal tax return, and living with you for minimum period of time each year.
9. Credit for the Elderly or the Disabled. This credit can be worth up to $7,500. It applies to those who are 65 years or older or are retired on permanent disability and have taxable income.
10. Energy credits. Some of these include common energy savings projects, like installing windows, insulation and energy-efficient air-conditioning systems are available for up to a maximum of $500 (based on 10 percent of the cost). Larger credits for residential alternative equipment, like solar water heaters and geothermal heat pumps, earn a 30 percent credit.
Feel like they are credits you’re not taking advantage of? Williams and Kunkel, CPA, LLP, CPAs can help you save money on your taxes. Call us today in Flower Mound at 972-446-1040.
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Source: CNBC