July 8, 2015
Income taxes can feel like a money-suck on your hard earned cash. Almost no one likes to pay them and many people hire professionals (at a premium cost) for the task of taking care of their taxes for them. There are, however, several tax credits in place that can help you retain more of your earnings. If you are eligible for a tax credit, the amount you owe in income tax is lessened by the total credit amount. Before you file… your next income tax return, see if you qualify for any of the below credits and work your way to a bigger tax refund.
1. Earned Income
This credit, also known as EITC, was established in 1975 to help offset the cost of Social Security taxes and to provide an incentive for people to work. The credit is determined by income and other components like marital status and number of dependents. Keep in mind that your investment income is also a factor and you must be between 25 and 65 years old to qualify for the federal program. Some states also have a similar credit. In New York, the state credit is equal to 30% of the federal EITC.
2. Child & Dependent Care
For parents who need to put their children or dependents under 13 in babysitting or daycare to enable them to work, there is the child and dependent care credit. This is also available to those with a spouse or dependent of any age who is incapable either physically or mentally to take care of themselves.
The government encourages people to be energy efficient with some tax incentives. If you have made qualified improvements to your home that will reduce your energy use (like by installing or updating a system), you might be able to get local, state or federal energy tax credits or breaks. Green home improvement can save you money, help you cut back on income tax – and help save the planet in the process. For example, California gives tax credits for installing solar panels on your home.
The college tuition credit, which is sometimes referred to as the American Opportunity tax credit, helps families fund the costs of higher education. The income limits are higher than other education credits, but you cannot qualify for this credit if you opt to include tuition costs and other fees as a deduction. It’s a good idea to calculate the effectiveness of each option to help you decide which is more beneficial in your specific situation.
5. Saver’s Credit
The government knows how important saving for retirement is and allows you to deduct contributions to retirement plans from your income to lower your tax bill. Low- and moderate-income citizens can also file for the Saver’s Credit for up to 50% of their retirement contributions. You can use this to reduce your income tax or increase your refund.
While not every credit applies to every tax bracket and different states employ different credits, it’s a good idea to do some research to make sure you are getting the credits you deserve.