Tax credits are a great way to save money during tax season. Don’t forget about them when you file your taxes this year. Individual tax planning is stressful enough, but tax credits can help reduce what you owe as part of your taxes due.
Here you will learn about claiming tax credits for tax filing and the top 5 tax credits available this year. Let’s discover the best tips to maximize your tax credits this tax season.
Important Information About Filing Taxes
The 2023 tax filing season ends on Tuesday, April 18, 2023. April 18, also known as Tax Day, is the due date for all tax returns and tax payments to the federal government. You must also file state and local government tax returns by April 18.
Filing taxes means you are reporting all taxable income to the government to ensure you paid what you were supposed to in taxes. Sometimes, the government will audit your return randomly or due to suspicious activity. That is rare, as the government only audits less than 1% of annual tax returns.
Find Out if You are Eligible for Tax Credits
You may have heard about tax credits before, but what are they? Tax credits are not the same thing as deductions. Tax credits can save you more money than deductions because they reduce your overall tax amount owed to the government. Deductions reduce the amount of your income subject to being taxed before the total amount of tax owed is calculated.
Tax credits are then applied to the final taxes owed as calculated in your return. Even if you don’t owe taxes back to the government, tax credits can still be claimed to boost your tax refund.
The top 5 federal tax credits to take advantage of this tax season include:
- EV Tax Credit
- Earned Income Tax Credit
- Child Tax Credit
- American Opportunity Credit
- Lifetime Learning Credit
1) EV Tax Credit
The EV Tax Credit stands for the Electric Vehicle Tax Credit. President Biden signed the most recent changes to this tax credit into law in 2022 under the Inflation Reduction Act. The credit can provide up to $7500 in a tax break for those who qualify. The tax credit is in effect for ten years and is set to expire in December 2032.
The EV Tax Credit can only be claimed in the year the electric vehicle was purchased. There are income restrictions on the EV Tax Credit, and vehicle price limits. For example, if the MSRP of a vehicle is more than $55000, it will not qualify for the credit. Check out the list of eligible vehicles and IRS requirements to see if you qualify for this tax credit. There are many distinctions to the EV Tax Credit, especially for the 2023 tax season. Consulting with a professional can help you determine if you qualify for the credit with more ease than doing it yourself.
2) Earned Income Tax Credit
The Earned Income Tax Credit, or the EITC, is designed to help low- and middle-income families by reducing their tax burden. To claim this credit, you must meet certain income thresholds outlined in your tax return. For 2022, those limits range between $16,480 to $59,187 (depending on your filing status) and include the following stipulations:
- Everyone claimed on your return must have a valid Social Security number
- You cannot have more than $10,300 in investment income
The IRS also has a tool on its website to check your eligibility for this tax credit.
3) Child Tax Credit
The Child Tax Credit is a significant tax credit for families claiming dependents under the age of 17 on their tax returns. Claimed dependents must have valid Social Security numbers to qualify. There are also income thresholds for this tax credit.
The more money you make, the less you can claim in credit. The final stipulations for this credit are that your dependents cannot be financially independent and must live with you for more than half the year. The Child Tax Credit can earn you up to $2000 per child!
4) American Opportunity Credit
The last two credits to take advantage of this tax season are the American Opportunity Credit and the Lifetime Learning Credit. Both credits are education-focused but target different expenditures.
The American Opportunity Credit is designed to support students pursuing formal degrees. Also, it can only be claimed during the first four years of attending a higher education institution. The maximum amount for this credit is $2500 per qualifying student. You have to receive form 1098-T to claim this credit.
This tax credit is for the following qualifying students:
- enrolled at least half-time during academic semesters
- not claimed this credit more than four times already
- no felony convictions during the tax year
- have not completed their degree at the beginning of the tax year
5) The Lifetime Learning Credit (LLC)
The Lifetime Learning Credit (LLC) is for ongoing education and training programs at all levels of higher education. The LLC has no limit on the number of years or times it can be claimed. The LLC is worth up to $2000 per tax return and has the following requirements:
- Expenses qualify as higher education and training related
- Expenses are for students enrolled in a higher education program
- The expense is for a qualified person claimed on your tax return
The biggest difference between these tax credits is that the LLC can be for any program (bachelor’s, master’s, and doctoral degrees) or to take classes to improve career skills. The American Opportunity Credit is time limited and is only for your first bachelor’s degree. As with all tax credits, there are income restrictions for these, depending on your filing status.
Consult with a Tax Professional to Maximize Available Tax Credits
The best tip we can give you is to consult tax professionals. Personal accounting and individual tax planning are not the headaches they tend to be if you utilize financial consulting services.
Waters Hardy can provide the financial and tax services you need for this tax season. Our team of experts will help you maximize all tax breaks, credits, and deductions.
Thanks to tax credits, your best refund is waiting for you.
Contact us now to get started.