Getting a tax credit is almost as good as not having any taxes to pay at all. Tax credits allow you to deduct sums of money from your taxes. This is better than getting a deduction because it not only reduces your taxable income it gives you a credit. For example, those in the 28% tax bracket would save $280 in taxes. However, you would need $3,571 in deductions to save $1,000 in income taxes.
Table of Contents
- 1 Credits for Individuals and Businesses
- 2 Earned Income Tax Credit (EITC)
- 3 Child Tax Credit
- 4 American Opportunity Tax Credit (Education Credit)
- 5 How to Find and Calculate Tax Credits
- 6 Other Credits Available for Individuals
- 7 Bottom Line
- 8 How to File Taxes Online in 3 Simple Steps - TurboTax Tax Tip Video
Credits for Individuals and Businesses
Getting tax credits is easy. In fact, Congress readily gives them to individuals and businesses that do the things that they stand behind. Some credits are only available to businesses while others are for individuals only. If you are an individual who owns a business, you may be able to claim valuable tax credits.
Since the fiscal cliff tax deal passed in January of 2013, Congress has come to love tax credits, and showed this by extending some of the credits, and making some of them permanent. The tax credits do differ because they all have different sets of rules and amounts. However, usually, they are based on the amount of money spent yet some have caps on them that cannot be exceeded.
Several of the current tax credits available have income limits and decrease or phase out for those who make more than the income limits. The tax credits you are eligible for are claimed on the second page of your Form 1040. First, you have to determine how much you owe in taxes without the credits then you deduct the amount from the total of your combined credits. Additionally, each credit you claim requires a special tax form.
Tax credits usually only cover a portion of an expense, so if you do not need something there is no need for you to purchase it just so you qualify for a tax credit. For example, if you are not a hybrid person there is no need for you to purchase one. However, if you do need or want one the credit can help reduce your income taxes.
Below we will discuss some of the most popular tax credits for individuals:
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is for individuals who work but do not make a lot of money. Only working families who have an income level below a certain level are going to qualify. Thanks to the American Taxpayer Relief Act this credit will be around for five more additional years.
Child Tax Credit
The Child Tax Credit is for individuals who have children who are under the age of 17. This credit can be as much as $2000 per qualified child, in addition to the exemption that comes along with dependents. However, there are income restrictions as well as phase out provisions. Like the Earned Income Tax Credit this tax credit will be around for an additional five years thanks to the American Taxpayer Relief Act.
American Opportunity Tax Credit (Education Credit)
The American Opportunity Tax Credit, also known as the Hope Credit, is a tax credit that helps parents and students pay for their post-secondary education with a maximum of $2,500 for the credit. Usually, you are allowed to claim your own tuition and the required enrollment fees, as well as those that come along your dependents. In order to be eligible you or your dependent have to be enrolled in school for at least half time thanks to the American Taxpayer Relief Act of 2012.
How to Find and Calculate Tax Credits
A good option is to use the dependents tax credit finder/calculator. It asks some basic questions about the dependents and will let you know if you can claim them on your tax return. You’ll also have a good idea of how much you can qualify for.
Other Credits Available for Individuals
In addition to the tax credits that we have mentioned above there are other tax credits that individuals may be eligible for, such as:
- Medical expense tax credit
- Foreign tax credits for people who work and live abroad
- Adoption credit
- Energy efficient home improvement tax credit for residential – including solar energy – extended through 2013
- Alternative motor vehicles – i.e. hybrids
- Credit for prior year minimum tax
- Tax deductible home improvements
- Deductions for families and dependents
Make sure that you claim all of the credits that you are entitled too. Many people do not do this and end up paying more in taxes than they have to.
If you file your taxes online they will make sure that you are aware of all of the tax credits that you are entitled to, to insure that you get your largest refund ever. Try their free tax refund calculator to see how much your refund will be.