Most people know about tax deductions. Especially taxpayers who like to itemize. However, many taxpayers are not as aware of the numerous tax credits available to them every year. And missing out on these credits can cost you a lot of money. In fact, for many families, tax credits make the difference in whether or not they have tax debt, or they get a refund. In addition, unlike many long-standing deductions that got cut or reduced in the Tax Cut and Jobs Act, most of the most popular tax creditsare still alive and strong. But it’s up to you to make sure you take advantage of them. What Is a Tax Credit?
But, before we get into to the most popular tax credits, let’s briefly explain what a tax credit is. Unlike a tax deduction, which reduces the amount of taxable income you have, a tax credit increases the amount you willbe refunded, or decrease the amount you will owe, dollar-for-dollar. In other words, tax credits are even more valuable than deductions in most cases.
Most Common Tax Credits
So what are the most common tax credits available to you during this tax season? Let’s take a look:
Child Tax Credit – perhaps the most popular tax credit is the child tax credit. This has always been a help for families with children, but the Tax Cut and Jobs Act has doubled the amount of the credit. This is a refundable credit and could be worth as much as $2,000 per child under the age of 17.
Other Dependents Credit – this credit could be worth up to $500 per dependent adult child or elderly parent, but it’s a nonrefundable credit.
Child and Dependent Care Credit – This credit is aimed at helping parents who work, pay for childcare. If you qualify for the credit, it is worth 20 percent to 35 percent of your qualifying expenses.
Earned Income Credit – this is another popular tax credit, but it’s only available to those in low-income brackets. If you have dependent children and your income is within the thresholds, you could qualify for as much $6.431. But if you have investment income of more than $3,500 you automatically do not qualify.
Retirement Savings Contributions Credit – this credit is for those taxpayers that save money for retirement. By contributing to what’s called a tax-advantaged retirement account, you could actually earn free money. This credit is worth as much as $2,000 in free retirement savings for taxpayers that qualify.
Plug-in Electric Vehicle Credit – this is another tax credit that’s growing in popularity. As more people purchase qualifying plug-in electric vehicles, the more this credit is coming in handy. It ranges from $2,500 to $7,500 per vehicle. But it starts phasing out for each manufacturer after they sell at least 200,000 qualifying vehicles.
Get Your Tax Credits
Tax credits can be a big boost to your tax savings. So make sure you don’t miss out on any of these opportunities. While deductions certainly help reduce your overall tax bill, tax credits can actually give you free money. And everyone likes free money.
The post Don’t Miss Out on These Tax Credits first appeared on Advisors to the Ultra-Affluent – Groco.
