Tax credits can directly reduce the amount of tax you owe, making them one of the most valuable parts of a tax return. Unlike deductions, which reduce taxable income, tax credits reduce your bill dollar for dollar. Here is an example:
Let’s say a taxpayer owes $3,000 in federal taxes after their income and deductions are calculated. If they qualify for $1,000 tax credit, that credit directly reduces the tax owed. Instead of owing $3,000, they now owe $2,000.
Keep in mind that not ever credit applies to everyone, but below are 9 common tax credits that many taxpayers may qualify for depending on their situation.
1. Child Tax Credit
The Child Tax Credit is available to eligible taxpayers with qualifying children. Income limits and age requirements apply and eligibility depends on filing stats and household details. To qualify, the child should be under the age of 17 by the end of the tax year.
2. Credit for Other Dependents (ODC)
The ODC is a nonrefundable tax credit available for dependents who do not qualify for the Child Tax Credit, such as older children, full-time students over age 16 or supported relatives.
3. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is designed for low to moderate income workers. Eligibility is based on income, filing status and number of dependents.
4. Child and Dependent Care Credit
If you paid for childcare or dependent care so you could work or look for work, and if the child is under age 13 or if the dependent is physically or mentally unable to care for themselves, you may qualify for this credit.
5. American Opportunity Credit
The American Opportunity Credit helps offset qualified education expenses for eligible students during the first four years of higher education. Income limits apply
6. Lifetime Learning Credit
The Lifetime Learning Credit is available for qualified education expenses beyond the first four years of college, including graduate studies and certain professional courses.
7. Saver’s Credit
The Saver’s Credit, also known as the Retirement Savings Credit, may be available to eligible taxpayers who contribute to qualifying retirement accounts. This credit is often missed, especially by first-time contributors.
8. Premium Tax Credit
The Premium Tax Credit helps eligible individuals and families pay for health insurance purchased through the Health Insurance Marketplace. Income and coverage details determine eligibility.
9. Energy-Efficient Home Improvement Credit
Taxpayers who make qualifying energy-efficient improvements to their homes may be eligible for the Energy-Efficient Home Improvement Credit. Eligible expenses and limits vary by improvement type
Final Thoughts
Tax credits can make a meaningful difference on a tax return, but eligibility depends on many factors, including income, household size and life changes.
If you’re unsure whether a tax credit applies to you, please reach out to have your return reviewed at no cost, to help clarify what you qualify for and avoid missed opportunities.
All information can be verified via the IRS website — https://www.irs.gov/credits-and-deductions-for-individuals
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