Tax filing season is upon us, and for many, it can be a stressful and expensive time. But there are ways to make the process easier and more affordable. One of the most effective is to take advantage of tax credits.
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 for every dollar of credit you claim, you reduce your taxes by one dollar.
There are a variety of tax credits available, including the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), the American Opportunity Tax Credit (AOTC), and the Retirement Savings Contributions Credit (Saver’s Credit). Each of these credits has different eligibility requirements, so it’s important to research which ones you may qualify for.
The EITC is a refundable credit for low- and moderate-income workers. It can reduce your taxes by up to $6,660, depending on your income and the number of qualifying children you have. The CTC is a nonrefundable credit for taxpayers with children under the age of 17. It can reduce your taxes by up to $2,000 per child. The AOTC is a refundable credit for students who are enrolled in college or other post-secondary educational programs. It can reduce your taxes by up to $2,500 per student. The Saver’s Credit is a nonrefundable credit for taxpayers who make contributions to a retirement savings account. It can reduce your taxes by up to $1,000.
Tax credits can make filing your taxes easier and more affordable. They can reduce the amount of taxes you owe, and in some cases, even result in a refund. It’s important to research which credits you may qualify for and to make sure you’re taking advantage of all the credits available to you. Doing so can help make tax filing season a little less stressful and a little more affordable.