Personal Tax Credits: Everything You Need to Know

Do you feel like you are paying too much income tax? Well, you may feel this way if you are not applying for all the tax credits for which you qualify when you file your federal tax returns. Tax credits could significantly lessen the amount of taxes that you pay. You get tax credits for a whole year, and while you receive some automatically, you must claim others. Ideally, after calculating your federal taxable income and calculating your tax liability, you can deduct any amount of tax credit for which you are eligible from your tax liability. In the event that your tax credits are more than your tax obligation, you can apply for the difference as a refund.

Personal Tax Credits: Everything You Need to Know

It is essential to be aware of the tax credits for which you are eligible, so you can claim them and lessen your tax burden, hence saving enough cash to meet other obligations, like paying bills and loans. Remember, timely debt payments build your credit score, so you can qualify for additional credit facilities and at better rates. You can also work with experts, whom you can find on the Boostcredit101 website, to improve your credit score.

Some of the tax credits that may be available to you include:

Child and dependent care credit

Those who are employed or who are seeking employment and who also have to pay someone to take care of their child or other qualifying dependent may be eligible for this credit. You may be able to claim up to 35% of the qualifying amount that you spend on the caregiver(s) of your dependent child aged less than 13 years, a disabled spouse, or a disabled dependent. The claim depends on your adjusted gross income.

Child tax credit

This tax credit reduces tax liability for parents and other adults with dependent children. You may claim a credit of up to $2000 per child if you qualify. A qualifying child is usually a child, grandchild, stepchild, or foster child less than 17 years old who lives with you for more than half the year and who provides less than half of their own support.

Earned income credit

This tax credit benefits working taxpayers earning a low income. You can only claim this if you are an employee or are self-employed, and if you have earned income during the tax year. The credit amount depends on your adjusted gross income, your filing status, and the number of eligible children that you have.

Education credits

You may be eligible for two types of education tax credits if your spouse or children are attending a qualifying educational institution: the Lifetime Learning credit and the American Opportunity tax credit (previously called the Hope credit). You can only claim one of the two credits in a tax year for the same student. The determining factors for claiming any of the credits are your modified adjusted gross income (MAGI), your education status, and the sum of the eligible tuition and related expenses you pay in a particular year.

Other tax credits

You may qualify for additional federal tax credits, which include the following:

  •             Foreign tax credit
  •             Adoption tax credit
  •             Health insurance premium assistance credit

Conclusion

It would be prudent to seek the advice of your tax consultant and visit the relevant website for your state to get more information and clarification on the various personal tax credits for which you may be eligible.

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