Credit often causes smiles. Be it a good credit history or taking credit for doing something good, the word ‘credit’ usually has a positive connotation to it. This is especially true with tax credits. They help you reduce the taxes you owe. A tax credit is almost always better than a tax deduction because it reduces your taxes, dollar for dollar (i.e. – $5 in tax credits reduce your taxes by $5), while tax deductions only reduce your income and then you compute the tax owed from the reduced income (i.e. – $5 in tax deductions only reduce your taxes by $1 if you are in the 20% tax bracket). Dylan and Margaret were aware of this, so they wanted to optimally capitalize on this.
Some credits are also refundable. That means even if you owe no tax, you may still get a refund check. And some are non-refundable, which only reduces your income tax down to zero. The Adoption Tax Credit is one that is non-refundable. You can get approximately $14,080 (2019) in tax credits, but it will not give you a refund if your taxes are less than the credit. So, it’s better to receive a refundable credit, but ANY credit is good and almost always better than tax deductions.
Here are some other tax credits you shouldn’t overlook when filing your federal tax return:
This is a refundable credit for people who work, but don’t report earning much money. It can boost your refund by as much as $6,557 (2019 amounts). You may be eligible for the credit based on the amount of your income, your filing status and the number of children in your family. Single workers with no dependents may also qualify for EITC. Remember, if you are audited and it is determined that you are not eligible for the Earned Income Credit that you claimed, you could be barred from applying for Earned Income Credit for ten (10) years. This penalty comes because some people tried to apply for the tax credit, but the returns were fraudulent.
Now tax preparers must ask more questions and see some proof from taxpayers, such as birth certificates, medical records, social security cards, school records, divorce decree or some other form of proof that the dependent is living with you, and you are able to take the dependent on your tax return. Visit IRS.gov and use the EITC Assistant tool to see if you can claim this credit. For more see Publication 596, Earned Income Credit.
This can help you offset the cost of daycare or day camp for children under age 13. You may also be able to claim it for costs paid to care for a disabled spouse or non-child dependent of any age. For details, see Publication 503, Child and Dependent Care Expenses. This type of credit can reduce the taxes you pay by as much as $2,000 for each qualified child you claim on your tax return. The child must be under age 17 in 2019 and meets other requirements. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim the credit. See Publication 972, Child Tax Credit, for more about the rules. If you care for a parent, sibling or other non-child dependent, or you have dependent children, age 17 or older, who are not disabled you may qualify for a $500 Dependent Care credit, depending on income limits. Disabled children or other dependents usually qualify for CTC and/or DCC at any age, subject to income limits.
This helps workers save for retirement. You may qualify if your income is $64,000 or less in 2019 and you contribute to an IRA or a retirement plan at work. Check out Publication 590, Individual Retirement Arrangements (IRAs).
Did you, your spouse or your dependent take higher education classes last or this year?
If so, you may be able to claim some education credits such as the American Opportunity Credit or the Lifetime Learning Credit to help cover the costs.
For both School credits:
Some taxpayers earn interest and dividend income from foreign investments. Some of the income comes from investing in mutual funds or exchange traded funds (ETF). That income sometimes require that the taxpayer pays foreign taxes, to the government, where the investments are located. Some taxpayers work outside of the United States and must pay foreign income taxes on the income they earn overseas. If US taxpayers pay foreign taxes, either from wages or investments, the amount of the foreign taxes paid, is considered a credit against US tax, on their personal tax return. This may be accomplished by completing IRS Form 1116. (irs.gov/forms), or taking the deduction on Schedule A, under TAXES section. Your tax preparer would be able to determine which of the two options is best for you, based on your circumstances.
Also, when Americans work overseas for foreign companies, there is an exclusion allowed each year by the IRS (azmoneyguy would know how much is allowed for this year).
This exclusion or credit is non-refundable. A non-refundable credit means the amount of the credit can reduce or eliminate Federal Income taxes, but any excess credit will not be given back to the taxpayer, as a refund. You can’t get refunds from this credit, only tax reduction, but the exclusion, deduction or credit can reduce your income taxes to ZERO.
And finally, here are some energy credits to consider:
8. Residential Energy Efficient Property Credit
Also, always check with your state to see if it offers energy tax credits or deductions too!
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