You know about the many deductions you can take, but are you taking advantage of the tax credits available? Tax credits often apply to small populations of individuals, but can be more valuable than deductions, often amounting to thousands. These credits can eliminate paying taxes and bump you into a large refund. Take a look at 5 of the many tax credits often overlooked.
If you’re in the low to moderate income bracket, and saving for retirement, you can receive a tax break that only around 12% of qualified taxpayers claim. Depending on your adjusted gross income and filing status, you can receive credit for the first 10%, 20%, or 50% of the first $2,000 you put into retirement. Therefore, you can receive a credit of $200, $400,or $1,000. A married couple filing jointly can claim up to $2,000. Although one of the more broad and easily attainable credits, this one is non-refundable, meaning it can reduce your tax bill to zero, but won’t garner a refund.
This one is small but can add up and pairs with a tax deduction in tandem. You can receive up to $50 for qualifying expenses each month you host, as long as you have an official agreement with the organization sponsoring the student, they are a full time high school/secondary school student, and they are not related to you.
Being eco-friendly can pay off on your gas expenses, but also your tax bill. Plug-in electric vehicles acquired after December 2009 that have at least 5 kilowatt hours of battery capacity are eligible. The credit amounts to $2,500, plus $417 for the aforementioned 5 kilowatts, and $417 for each additional kilowatt of capacity. The total credit is limited to $7,500. There is a phase out period for each manufacturer, so research your car’s make and model for qualifying details.
Keep the eco-friendliness going by claiming tax credits on improvements to your home that fall under energy efficiency. Qualifying improvements include solar panels, solar powered water heaters, wind turbines, geothermal heat pumps, and fuel cells that rely on a renewable resource. The credit is equal to 30% of the cost, including installation, without limit, except for fuel cells, which maxes out at $500 per half-kilowatt of power capacity. Add a little more to your tax credit, up to $500, if you’ve installed exterior windows, certain roofing, and insulation.
First enacted in 2009, and now extended to 2017, the American Opportunity tax credit applies to the first four years of post-secondary education. The qualifications have opened up to taxpayers ranging from those who do not owe tax to those with higher incomes, up to $80,000 for individuals and $160,000 for married couples filing jointly. Many will qualify for the maximum annual credit of $2,500. The Lifetime Learning credit amounts up to $2,000, for individuals earning less than $64,000 and married couples filing jointly earning less than $120,000. Students do not necessarily have to be working towards a degree. with no limit to the number of years that it can be claimed. You are only eligible if no one can claim you as a dependent. These credits are nonrefundable and one student cannot claim both in the same tax year.
The above tax credits are just a few options among the many you probably aren’t aware of. Reduce and even eliminate your tax bill and earn some credit but outlining your financial situation, working circumstances, and lifestyle now to claim every one you can get.
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