Connect with us

Hi, what are you looking for?

News

Five Tax Credits That May Generate Huge Savings

What are tax credits?
What is working tax credit and child tax credit? There are two tax credits – child tax credit and working tax credit. You can claim one or both of them, depending on your household circumstances. HM Revenue & Customs (HMRC) deals with claims for tax credits. (Photo via https://www.litrg.org.uk/)

Taxpayers with low to moderate incomes who want to minimize their taxes or increase their tax refund might benefit greatly from federal tax credits. Here are the five largest tax credits that may generate huge savings.

Tax credits are monetary amounts that taxpayers may immediately deduct from the taxes they owe. This is not the same as tax deductions, which lower a person’s taxable income.

The value of a tax credit will depend on its type. Some tax credits may be available to people or corporations in specific regions, communities, or sectors.

A tax credit can reduce your tax liability dollar-for-dollar.

A tax credit is designed to incentivize taxpayers to do certain things, or to make certain activities more affordable. The Lifetime Learning Credit is designed to lower the financial burden of continuing education, and the Retirement Savings Contributions Credit is intended to incentivize retirement saving. (Photo via Getty Image)

 

Earned Income Tax Credit

The Earned Income Tax Credit is one of the most significant credits available to taxpayers. The 1975-established Earned Income Tax Credit (EITC) is based on income and is phased in according to filing status: single, married filing jointly, or any of those with children. It was created to help offset the cost of Social Security taxes and to encourage people to work. Adjusted gross income, earned income, and investment income are taken into account when determining eligibility and credit amounts.

The minimum age requirements for 2022 are 19 years old, however they are 18 for eligible homeless youngsters and former foster youth, and 24 for some pupils. There is no higher age limit for the 2022 tax year.
Both spouses must be U.S. citizens or legal permanent residents with active Social Security numbers if they are married.
If you can be claimed as a dependent on another filer’s tax return, you are ineligible.

You are not eligible for the EITC if:

You received investment income in 2022 totaling at least $10,300. You cannot be eligible for the credit if you have “disqualified income” according to the IRS.
If you work for yourself, you can be eligible for the EITC. Even if you believe you won’t qualify, tax professionals advise that you check your status each year.

 

Read More: Stimulus Update: The Fed’s Latest Rate Rise Fuel A Recession That Leads To Stimulus Check, Will They Do It?

Americans Seek Federal Stimulus Checks Amidst Rising Oil Prices

Tax Refund: How To Wisely Spend Your Money

 

American Opportunity Tax Credit

The Hope Credit helped families pay for the price of higher education. From 2009, that credit has been replaced and augmented by the American Opportunity Tax Credit.

Four years of post-secondary study are covered by the AOTC.

Those with modified adjusted gross incomes (MAGI) of $80,000 or less, or $160,000 or less for married couples filing jointly, are eligible for the full credit.
You may get up to $2,500 of the cost of eligible tuition and course materials paid during the taxable year, depending on your income (the credit decreases as income grows).

The student must have been enrolled for at least one academic period at least half-time.

Per-student availability applies to this credit.

 

Filing for the Federal Solar Tax Credit

The “C” in ITC is for credit. Credits are different than other tax-reducing tools and is not a refund, nor a deduction to reduce your adjusted gross income. This is a credit that you can apply to federal taxes you may owe. If you don’t owe taxes, the credit will need to carry over to another year (we’ll talk about that on line 12 of the form). (Photo via https://www.energyselectllc.com/)

 

Lifetime Learning Credit

The American Opportunity Tax Credit only applies to the first four years of post-secondary education; in contrast, the Lifetime Learning Credit was designed to assist with the cost of all post-secondary education. Those who are not pursuing a degree are also eligible for the credit.

For each eligible student, the Lifetime Learning Credit might reach $2,000 in total.
Both married couples filing jointly and individual taxpayers who meet the requirements and make $80,000 or less in 2022 are eligible for the full credit.
When income exceeds these limits, the credit is reduced.

 

Take Advantage of the Lifetime Learning Credit

Take Advantage of the Lifetime Learning Credit (Photo via https://www.dividendpower.org/)

 

Child Tax Credit

In contrast to 2021, when you would have gotten $3,000 each dependent kid between the ages of six and 17 and $3,600 every dependent child under the age of five, you will now only receive $2,000 per child. The minimum age requirement to qualify for the CTC is also lowered to 16 years old for the 2022 tax year.

The amount of credit you can claim on your 2022 income tax return, however, may be higher than it was during the 2021 tax season if you still have children under the age of 17. This is because the Advanced Child Tax Credit was not distributed in 2022.

 

Child Tax Credit Update: A portal to update bank details and facilitate payments

The United States’ White House and Treasury Department have worked together with Code for America to launch a new online website through which Americans can apply for the expanded child tax credit system. Child Tax Credit Update: A portal to update bank details and facilitate the payments. (Photo via https://www.marca.com/)

 

Savers Tax Credit

The Savers Tax Credit, formerly the Retirement Savings Contributions Credit, is available for contributions to certain other retirement plans and qualified investment retirement accounts (QIRAs), 401(k)s, and other programs. The highest tax credit is offered to taxpayers with the lowest earnings, up to $1,000 for single filers and $2,000 for joint filers.

The Savers Tax Credit’s maximum income limits for single filers, heads of household, and married couples filing jointly are $34,000, $51,000, and $68,000, respectively, for 2022.
The person filing the tax return must be at least 18 years old and cannot have been a dependent on another person’s return or be enrolled full-time in school.

 

Read More: IRS: More Vehicles Qualify For The New Clean Vehicle Tax Credit

Revised Vehicle Classification Definition: More Electric Vehicles Eligible For Federal Tax Credit