Tax season can be a stressful time for many people, especially those who are struggling to make ends meet. Fortunately, there are a number of tax credits available that can help make tax time easier and more affordable.
Tax credits are a type of tax incentive that can reduce the amount of taxes you owe. They are different from deductions, which reduce the amount of income that is subject to taxation. Tax credits are a dollar-for-dollar reduction of your tax liability, meaning that if you qualify for a $1,000 tax credit, your tax bill will be reduced by $1,000.
One of the most popular tax credits is the Earned Income Tax Credit (EITC). This credit is available to low- and moderate-income taxpayers who have earned income from wages, self-employment, or farming. The amount of the credit depends on your income and the number of children you have. The maximum credit for 2020 is $6,660 for taxpayers with three or more qualifying children.
The Child Tax Credit is another popular tax credit. This credit is available to taxpayers who have dependent children under the age of 17. The amount of the credit is up to $2,000 per qualifying child. The credit is partially refundable, meaning that if the credit exceeds the amount of taxes you owe, you may be eligible to receive a refund for the difference.
The American Opportunity Tax Credit is available to taxpayers who are paying for college expenses. The credit is worth up to $2,500 per eligible student and is partially refundable.
Finally, the Retirement Savings Contributions Credit is available to taxpayers who make contributions to a retirement savings account, such as an IRA or 401(k). The credit is worth up to $2,000 for taxpayers with incomes up to $65,000 ($131,000 for married couples filing jointly).
Tax credits can be a great way to reduce your tax bill and make tax time easier and more affordable. Be sure to check with a tax professional to see if you qualify for any of these credits.