Whoa! Don’t Skip the Tax Credits
You’re working on your tax return. You’re in a hurry. You want to get done and get it over with, so you skip the tax credits sections and hit send. Bad idea! Tax credits are designed to reduce your tax payment. That means that if you qualify for them, you may get a bigger refund or end up paying a lot less tax if you owe. Many tax credits exist specifically to help low- and moderate-income earners, too, so slow down and take a few minutes to learn how tax credits can help you save money.
There are currently 24 different tax credits available to individuals filing federal tax returns. They range from credits for child care to credit for buying electric vehicles. There are four specifically for homeowners, five related to family and dependents, two each for healthcare and education, seven related to income and savings and four just for electric vehicles. Wow!
To claim a tax credit you will need to meet certain qualifications and fill out a few extra forms. (Or your accountant will do that for you.) But it’s so worth it. If you qualify for a tax credit of $500, that takes $500 directly off your tax bill.
Not all tax credits are created equally, though. Some credits (nonrefundable) only reduce the amount of tax you pay while others (refundable) can also get you an additional refund.
Here are 4 tax credits that can help you score a refund…
This credit is for lower-income working folks with few investments. To qualify for 2015, income must be limited to $14,820 up to $53,267, depending on filing status and number of qualifying children, and investment income must be less than $3400. For those who qualify, maximum credits range from $503 to $6,242! It’s worth noting that this credit often applies to people who fall beneath the income range for filing a tax return. So if you worked a little bit and but you didn’t file a tax return because you made so little, you may have cheated yourself out of the earned income credit. (Good news, we can help by amending your tax return!)
The child tax credit may be available for anyone who claims a child as a dependent on their tax return. This credit is different from the Child & Dependent Care credit, and the Dependent Care credit must be claimed before you claim the Child Credit. For a child to qualify for this credit, there are nine criteria that must be met. Income limitations apply and only part of this credit is refundable, but it’s worth it to do the calculations to see if it works for you.
This education credit can only be claimed if you do not use the education expense deduction. Up to 40% of this credit is refundable (up to $2500/student) and is available for the first four years of post-secondary college education tuition and course materials. Both taxpayers and their dependents can claim this credit.
People who bought their health insurance through the federal marketplace or exchange and qualified for a premium tax credit (subsidy) but didn’t use any or part of the credit to pay premiums during the year may be eligible to get a refund of that tax credit when they file their tax return.
Another education tax credit that many people don’t know about is the Lifetime Learning Tax Credit. This credit is available for anyone, of any age, for for any year of college (not just the first four), and it even applies to people who are not seeking a degree. That’s a boon to retired individuals with limited income who want to learn some new tricks! It’s almost like getting educated for free!
Remember that tax credits are different from tax deductions. Deductions lower the amount of your taxable income, while tax credits directly reduce the amount of tax you have to pay. Dollar-for-dollar, tax credits are more valuable than tax deductions.
With so many tax credits available, it is worth it to claim as many as possible. Of course, the rules change each year, so be sure to consult your tax advisor or do your own research to be sure you get the most bang out of your tax credit bucks.
Here is the complete IRS list of Individual Tax Credits:
Family & Dependents
Income and Savings
Electric Vehicle Credit
If you have questions about the tax credits you receive, or may be eligible for, get in touch. We can help!