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?

 

To know if you qualify for any tax credit? Need help with filling your 1099 tax form? Meet with a member of our accounting team receive help and learn what best applies to you. We are able to help with any accounting questions, how to file taxes with 1099, ERC’s, and recovery start up business. Sign up on the link below!

Schedule A Free Appointment


Leave a Reply