As an additional way to reduce taxable income is through tax credits. A tax credit is an amount of money a taxpayer can subtract from owing the government. This is eligible depending on the nature of credit, and certain types of credit.
Earned Income Tax Credit
This credit is suitable for those taxpayers with low incomes by reducing the amount of tax owed through a dollar-by-dollar basis.
Child and Dependent Care Credit
Taxpayers that are looking for work and have the responsibility to pay for childcare, a qualified dependent, or a disabled spouse. These individuals may be eligible for this form of tax credit varies on the income of the taxpayer.
Child Tax Credit and the Additional Child Tax Credit
The tax credit pertains to those who may have qualifying children in addition to the child and dependent care credit. This may be claimed by families owing the IRS less than the qualified Child Tax Credit amount.
Lifetime Learning Credit
Those taxpayers in the United States who have obtained educational expenses in the given year are able to claim lifetime learning credit. The intent of the lifetime learning credit is to outweigh the educational cost of the year. Qualifications for this credit must be a student attending school on at least part time or full time biases.
American Opportunity Tax Credit
This tax credit is for education expenses that are paid by a qualified student for their first four years of education. Those eligible can receive a maximum annual credit of $2,500 per student. It is necessary these students must be enrolled in an educational institution at least part time in one academic tax year.
What Type of Tax Credits are available?
Nonrefundable Tax Credits
These are credits acting as a tax break reducing one taxable income. Amounts that are greater than the tax owed are not paid out. These Credits are only available in the year of reporting.
Refundable Tax Credits
Refundable tax credits are the most favorable credits due to being paid in full. Regardless of the taxpayers income or tax liability they are entitled to the full amount of credit.
Partially Refundable Tax Credits
This is a tax credit that is only partially refundable. These credits play hand in hand with the Child Tax Credit and American Opportunity Tax Credit.
Interested in Tax Credit?
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