5 tax credits you don’t want to miss out on this year

5 tax credits you don’t want to miss out on this year

We all want to lower our taxes as much as possible, and claiming tax credits is a great way to achieve that goal. A tax credit is a dollar-for-dollar reduction of your tax liability. If you owe the IRS $2,000 and score a $2,000 credit, the $2,000 you’re on the hook for goes away.

Most tax credits are not refundable, so the most they can do is shrink your tax bill to $0. But credits that are refundable will pay you back even if you don’t owe money on your taxes, making them extra-valuable. With that in mind, here are a few tax credits to keep on your radar this year.

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1. The Earned Income Tax Credit

Designed for low-income households, the Earned Income Tax Credit, or EITC, is worth up to $6,557 for the 2019 tax year depending on the number of children you have living in your household. And, it’s a refundable credit, which means it could put money in your pocket even if you don’t owe the IRS a dime.

To qualify, you’ll need a tax-filing status that isn’t married filing separately, and you can’t have investment income over $3,600. From there, you’ll be eligible based on your income and qualifying children, as follows:

Meanwhile, here’s what you might get from the EITC:

  • Up to $6,557 with three or more qualifying children.
  • Up to $5,828 with two or more children.
  • Up to $3,526 with one child or more.
  • Up to $529 with no qualifying children.

It’s estimated that around 20% of people who are eligible for the EOTC don’t claim it, so don’t make that same mistake.

2. The Child Tax Credit

The Child Tax Credit is worth up to $2,000 per child in your household under the age of 17. You’ll snag that full $2,000 if your income doesn’t exceed $200,000 with a filing status of single, head of household, or married filing separately. From there, the credit starts to phase out until it’s off the table completely with an income over $240,000. If you’re married filing jointly, these limits increase to $400,000 and $440,000, respectively.

As you can see, the Child Tax Credit isn’t just for lower-income households. And, up to $1,400 per child is refundable.

3. The American Opportunity Tax Credit

If you’re paying for college, you may be entitled to money off your taxes from the American Opportunity Tax Credit, or AOTC. To qualify, the student you’re paying for must be enrolled in college at least half-time. From there, the credit is worth 100% of your first $2,000 in education expenses, and then 25% of the next $2,000 you spend for a total of $2,500. And, the credit is 40% refundable, which means you could get a check for up to $1,000 because of it.

Eligibility for the AOTC depends on your income, and if you earn more than $90,000, you won’t be eligible if your filing status is anything other than married filing jointly. Otherwise, that threshold increases to $180,000.

4. The Lifetime Learning Credit

The Lifetime Learning Credit applies to anyone who’s paying for education — it doesn’t have to be college and there are no specific enrollment requirements. For example, if you take a course to boost your job skills, that counts.

Meanwhile, the credit is worth 20% of the first $10,000 you spend on education costs, so it could lower your taxes up to $2,000. Eligibility hinges on income so that if your status is not married filing jointly, you’re excluded once your income exceeds $68,000. If you are married filing jointly, that threshold increases to $136,000. The Lifetime Learning Credit is also not refundable.

5. The Child and Dependent Care Credit

The Child and Dependent Care Credit is designed for parents who pay for child care so they can work or look for work, and it’s not available to married couples filing separately. The credit is worth between 20% and 35% of up to $3,000 in child care costs for one child under the age of 13, or up to $6,000 in child care costs for two or more children under 13.

Whether you get to claim 20% of your costs, 35%, or somewhere in between depends on your income, but once your earnings reach $43,000, you’re limited to 20%. If that’s the case, and your total child care costs for three kids equal $12,000, you can reduce your tax bill by $1,200 (20% of $6,000).

The Child and Dependent Care Credit is nonrefundable. And, you can’t claim it if you’re paying a dependent of yours to care for his or her younger siblings.

Know your credits

The more tax credits you manage to snag, the less money you’ll owe the IRS — and the more you’ll get back. Be sure to read up on these and other important tax credits so you don’t lose out on the savings you’re entitled to.

 

Source:- usatoday

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