Common Tax Credits and How to Qualify for Them

Tax season can be a stressful time for many. There are many things to do, items to check off your list, and complex language that can be hard to figure out. But there are ways to get something back for your growth and efforts throughout the year in the name of tax credits.

So, as you work through your tax file, here are some common tax credits and what you need to qualify for them.

Tax Credits vs Deductions

Of course, when it comes to taxes, everyone wants to owe as little as possible and get some money back. These can come as both tax credits and deductions. But what’s the difference? They may seem similar, but they each work differently. In short, tax deductions reduce your taxable income for the year, while tax credits are a dollar-to-dollar reduction you can claim on your tax return.

Both can save you some money. So, knowing the difference and looking for the right tax credits during your financial planning for tax season can help you ensure you get the most out of your filing.

Common Tax Credits Available

There are many tax credits widely available to many taxpayers. Here are some of the most popular ones you can look into this tax season.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit is ideal for low-to-moderate-income workers to reduce their owed taxes and perhaps get an increased refund.

To see if you qualify, you can use the IRS’s EITC assistant, answer a few questions, and get an estimated tax credit amount. How much you get depends on a few factors, including your income level, how many children you have, age, and filing status.

Child Tax Credit

The Child Tax Credit is a tax benefit for families with children under 17. You can get up to $2,000 per qualifying dependent child. There are a few requirements to qualify. Apart from the child being under 17, they must also be claimed as a dependent, have a social security number, and have lived with the patent for more than half the tax year.

There are some more eligibility requirements to know before claiming this credit. You can learn more about the Child Tax Credit here.

Education Credits

Some tax credits can get you a break for pursuing higher education. There are two common education tax credits available if you’re not claimed as a dependent: American Opportunity Credit and Lifetime Learning Credit.

American Opportunity Tax Credit

If you’re an undergraduate, this tax credit allows you to lower your tax bill by up to $2,500 for education-related expenses like textbooks, tuition, and equipment. However, it doesn’t apply to travel and living expenses.

Lifetime Learning Credit

With the Lifetime Learning Credit, you can claim up to $2,000 on your tax return for tuition-related expenses in an eligible educational institution. Like the American Opportunity Credit, it doesn’t apply to travel and living expenses. However, unlike the AOC, it’s also available for graduate and vocational programs.

Energy Efficiency Credits

If you made home energy improvements like energy-efficient windows, doors, or air conditioners, you may be able to claim up to $3,200. There are also tax credits available for purchasing electric vehicles and installing solar water heaters and panels.

Ready for Tax Season?

Tax credits can be a welcome reduction for many taxpayers. However, it’s important to understand how each credit works. So, you can claim them correctly and get what could be a much-needed break on your tax bill.

Keep track of all your expenses and documents for the year to maximize your tax credit opportunities. And, work with experienced tax professionals to file with confidence.