Don’t Miss These 3 Tax Credits When You File This Year

Filing taxes can be overwhelming, especially if you're new to it or trying to ensure you get your return the maximum amount. Whether filing for the first time or a seasoned pro, maximizing your tax savings can be done easily by taking advantage of certain credits and deductions available.

As we move closer to Tax Day 2021, pay attention to these three popular but often overlooked tax credits when filing this year: Earned Income Credit (EIC), Child and Dependent Care Credit (CDCTC), and Education Credits.

We'll look at what they are and how they help save on taxes so that you can maximize your tax return!

Overview of Tax Credits Available

Certain credits and deductions can help reduce or eliminate your taxable income when filing taxes. These include the Earned Income Credit (EIC), Child and Dependent Care Credit (CDCTC), and Education Credits.

We'll look at each of these in more detail so you can maximize your tax savings this year.

Additionally, it's important to note that credits are a dollar-for-dollar reduction of your tax liabilities. So if you qualify for one or more of these credits, take advantage of them!

It is important to learn about the qualifications for each one as they can vary greatly depending on your situation.

Earned Income Credit (EIC)

The Earned Income Credit, or the EIC, is a tax credit available to low and moderate-income taxpayers. You must have earned income from employment, self-employment, or other recognized sources to qualify for this credit.

The maximum amount of the credit varies depending on your filing status and the number of qualifying children. This credit can reduce taxable income and, sometimes, result in a tax refund for individuals who claim it.

Do You Qualify?

The Earned Income Credit (EIC) is a tax credit for low and moderate-income taxpayers. To qualify, you must have earned income, such as wages from a job or self-employment.

Your filing status also impacts qualifications: single filers, heads of household, qualifying widows (er)s with dependent children, and married couples filing jointly.

To determine whether you qualify for the EIC, use the IRS's Free File software or contact a local tax professional.

Child and Dependent Care Credit (CDCTC)

The Child and Dependent Care Credit is designed to help taxpayers offset the costs of caring for a dependent. To be eligible, your dependent must be under age 13 or disabled, and you must have paid for care to work or look for work during the year.

The credit is based on a percentage of up to $3,000 of qualifying expenses for one dependent or up to $6,000 for two or more dependents. This credit can be applied to both federal and state income taxes.

Do You Qualify?

To qualify for the CDCTC, you must meet these requirements:

- You and your spouse, if filing jointly, must have earned income during the year.

- Your dependent must be a qualifying child or qualifying relative as defined by the IRS.

- You must have paid for care to work or look for work.

- The care must have been provided by someone, not your dependent or spouse.

The Child and Dependent Care Credit can be a great way to save money on taxes, especially if you have qualifying dependents and expenses for their care. Take full advantage of this credit when filing your taxes this year!

American Opportunity Credit and Lifetime Learning Credit

The American Opportunity Credit and the Lifetime Learning Credit are two education credits that can help you save money on your taxes.

The American Opportunity Credit (AOC) is available for undergraduate students enrolled at least half-time in a college or other post-secondary institution and covers up to $2,500 of qualified expenses, such as tuition, books, and other course materials.

The Lifetime Learning Credit (LLC) is available to all students enrolled in an eligible educational institution at any level and covers up to $2,000 of qualified expenses. Both credits are subject to income limitations, so make sure that you research the criteria for each one before filing.

Additionally, suppose you're a student or parent of a student who has taken out federal Student Loans. In that case, you may be eligible for loan interest deductions that can help reduce your taxable income.

These education credits are easy to miss if you need to learn about them, so check if you qualify when filing this year! Taking advantage of these tax credits and other deductions can help to maximize your tax savings, so remember to look out for them.

With a few simple steps, you can increase your returns and reduce the taxes you owe. So ensure you take advantage of these three popular but often overlooked tax credits when filing this year!

Do You Qualify?

To qualify for The American Opportunity Credit and the Lifetime Learning Credit, you must meet these requirements:

- You and your spouse, if filing jointly, must have earned income during the year.

- The student must be enrolled at least half-time in an educational institution eligible for AOC or LLC.

- The expenses paid for tuition, books, and other materials related to the course must qualify for the credit.

- Your modified adjusted gross income (MAGI) must be within certain limits to qualify for one or both credits.

Tips on Avoiding Potential Pitfalls When Applying for Tax Credits

Tax credits can offer substantial savings, but you could owe more money instead if you need to meet the qualifications or use incorrect information. To help ensure that you get the most out of your tax credits, here are three tips to keep in mind:

1. Make sure you qualify for the credit before filing. It would be best to meet certain criteria to qualify for many credits, such as the Earned Income Credit (EIC) or Child and Dependent Care Credit (CDCTC). Make sure you understand the qualifications of each credit before filing your taxes.

2. Know what forms are needed. You must provide certain forms to qualify for certain tax credits. For example, if you claim the Earned Income Credit, ensure you have all the required forms, including W-2s and 1099s.

3. Double-check information. Once you've filled out your tax forms, double-check each entry to ensure it is correct. Please correct the information to avoid costly delays or potential penalties.

FAQs

What does a tax credit do?

Tax credits are one of the ways taxpayers can reduce their tax burden when filing. They're a dollar-for-dollar reduction in your taxes owed, meaning that your tax bill is reduced by an equal amount for every dollar you claim as a credit.

Is a tax credit a refund?

No, a tax credit is not a refund. A tax credit reduces the taxes you owe, while a refund is money you receive from the government after filing. How much relief you receive will depend on how much you qualify for and what type of credits or deductions are claimed.

Is tax credits good or bad?

Tax credits are generally good, as they help reduce your overall tax burden. However, it is important to ensure that you know all the conditions and limits associated with claiming these credits to maximize their benefits.

Conclusion

Filing taxes can be a daunting process. But by taking advantage of credits and deductions available, you can maximize your tax savings. Consider the Earned Income Credit (EIC), Child and Dependent Care Credit (CDCTC), and Education Credits when filing this year to receive the maximum benefit in your return. With a little research and understanding, you can ensure you take advantage of these important credits when filing your taxes this year.