No one wants to pay more taxes than necessary. Tax credits are deducted from the amount of taxes you pay each year and can be valuable resources when filing. There are two types of tax credits recognized by the IRS, which include nonrefundable and refundable.1 Here are a few tax credits you should be aware of that fall under the previously mentioned categories:
Family and Dependent Credits
The list of credits in the family and dependent category include the Child Tax Credit (CTC), which is worth up to $2,000 per qualifying child and $500 per qualifying dependent.2 Other child-focused tax credits include the adoption credit and the child and dependent care credit.1 The Earned Income Tax Credit (EITC) is a well-known “benefit for working people with low to moderate income.”3 The last benefit in this category is the credit for the elderly or the disabled, which is available for individuals who are age 65 or older at the end of 2019 or have retired on permanent and total disability and have taxable disability income.4
Income and Savings Credits
The EITC also falls under the income and savings credits category, along with the saver’s credit, also known as the retirement savings contributions credit. The foreign tax credit can be claimed on foreign taxes imposed by a foreign country or U.S. possession.5 Other credits in this category include the excess Social Security and RRTA tax withheld, credit for tax on undistributed capital gain, and the nonrefundable credit for prior year minimum tax.1
If you own a home, you may have access to credits such as the residential energy credit if you made certain “energy saving improvements to your home located in the United States.”6 First-time homebuyers can also look to their IRAs as they may be eligible to take up to $10,000 out without paying the usual 10% early withdrawal penalty. There are several other benefits for first-time homebuyers, but there are certain qualifications you must meet to be categorized as such. On the downside for homeowners, the Tax Cuts and Jobs Act has limited the home mortgage interest commonly used as a deduction.7
Health Care Credits
As a part of the Affordable Care Act, the premium tax credit was created as a refundable credit to “help eligible individuals and families cover the premiums for their health insurance purchased through the Health Insurance Marketplace.”8 The health coverage tax credit is also available for qualifying individuals “to offset the cost of their monthly health insurance premiums.9 Keep in mind that there are specific forms you will need to fill out to be eligible for these health care credits.
Education credits include the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit (LLC), and the Tuition and Fees Deduction (TFD). The AOTC helps students pay for qualified education expenses through the first four years of higher education.10 The LLC, however, can go toward all degree levels, and there is no limit to the number of years you can claim the credit.11
With so many options available for tax credits, it’s easy to miss valuable opportunities. Having a financial professional on your side is a great way to make sure you make the most of your tax plan. We can help you discover tax credits you may not be aware of and create a plan that works best for your situation. Let’s discover what tax credits you may be eligible for today!