When it comes to tax season, every taxpayer wants to make sure they are taking advantage of all the tax credits available to them. Tax credits can help reduce your tax liability and put more money back in your pocket. Here are 10 tax credits that every taxpayer should know about:
1. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is a refundable tax credit for low to moderate-income individuals and families. The amount of the credit varies depending on income level, filing status, and number of qualifying children. It is designed to help working individuals and families make ends meet.
2. Child Tax Credit
The Child Tax Credit is a tax credit for parents or guardians with qualifying children under the age of 17. The credit is worth up to $2,000 per child and is partially refundable. To qualify, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
3. American Opportunity Tax Credit
The American Opportunity Tax Credit is a tax credit for qualified education expenses paid for an eligible student in the first four years of higher education. The credit is worth up to $2,500 per student and is partially refundable. To qualify, the student must be pursuing a degree or other recognized education credential.
4. Lifetime Learning Credit
The Lifetime Learning Credit is a tax credit for qualified tuition and related expenses paid for eligible students enrolled in eligible educational institutions. The credit is worth up to $2,000 per tax return and is non-refundable. Unlike the American Opportunity Tax Credit, there is no limit on the number of years the credit can be claimed.
5. Child and Dependent Care Credit
The Child and Dependent Care Credit is a tax credit for expenses paid for the care of a qualifying child under the age of 13 or a disabled dependent or spouse. The credit is worth up to 35% of qualifying expenses, up to $3,000 for one child or $6,000 for two or more children. To qualify, the care must enable the taxpayer to work or look for work.
6. Adoption Credit
The Adoption Credit is a non-refundable tax credit for qualified adoption expenses paid to adopt an eligible child. The credit is worth up to $14,080 per child for 2021. To qualify, the adoption must be finalized, and the expenses must be necessary and directly related to the adoption.
7. Savers Credit
The Savers Credit is a tax credit for low to moderate-income individuals and families who contribute to a retirement account, such as an IRA or 401(k). The credit is worth up to $1,000 for individuals or $2,000 for couples filing jointly. To qualify, the taxpayer must be at least 18 years old and not a full-time student.
8. Residential Energy Efficiency Property Credit
The Residential Energy Efficiency Property Credit is a tax credit for the cost of qualifying energy-efficient improvements made to a taxpayer’s primary residence. The credit is worth up to 26% of the cost of the improvements, up to a maximum credit of $500 for 2021. Qualifying improvements include solar panels, solar water heaters, and energy-efficient windows and doors.
9. Health Coverage Tax Credit (HCTC)
The Health Coverage Tax Credit is a tax credit for eligible individuals and families who are receiving Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension payments from the Pension Benefit Guaranty Corporation. The credit can help offset the cost of health insurance premiums.
10. Foreign Tax Credit
The Foreign Tax Credit is a tax credit for U.S. taxpayers who pay foreign taxes on income earned in a foreign country. The credit is designed to prevent double taxation on the same income. To qualify, the taxpayer must have foreign income and foreign taxes paid that are considered eligible for the credit.
In conclusion, tax credits can be a valuable tool for taxpayers to reduce their tax liability and keep more of their hard-earned money. By taking advantage of the tax credits listed above and others that may apply to your situation, you can potentially save hundreds or even thousands of dollars on your taxes. Be sure to consult with a tax professional or use tax preparation software to ensure you are maximizing your tax credits and deductions.
