Happy Sunday! This week we are going to continue our blog series. Yes, Part II (Have You Filed), not Part II (On the Run) - which is my song btw! Besides, who wants that perfect love story anyway? - Cliché, Cliché! We want a perfect tax filing - REFUND, REFUND! This topic will be broken up into two blog posts & will focus on tax credits and deductions. Let’s start with credits and next week we will delve into deductions!
Tax Credits: A credit is just as it sounds – it will reduce the amount of mone
y you owe or will increase your refund. There are many different types of tax credits, you just need to know which credits you are eligible to receive. Below are some of the most popular tax credits that you may see:
Recovery Rebate Credit – If for some reason you were eligible for the three stimulus payments and did not receive one, some, or all of them, you can claim this credit if you did not for the 2020 tax year.
Earned Income Tax Credit – This is one of the most popular credits as it was designed for low to moderate income workers with children. Qualification is based on income limits and investment income less than $10K.
Child Tax Credit – This is very popular for those with children and other dependents (and quite frankly makes me want to have a few babies right now! – JK). If you have claimed children on your tax return in the past, it will be a little different this year. The credit is $3,600 for children ages 5 and under & $3K for children aged 6-17. However, throughout the second half of 2021, the IRS made $300 or $250 monthly payments, depending of your child(ren)’s ages. You will be able to claim the other half of the credit on you tax return. But, if you had a baby in 2021, you should see the full credit!
Child and Dependent Care Credit – This tax credit pays for the care of eligible children and qualifying persons. You can receive up to $8K for two or more qualifying dependents. To qualify, you must have received earned income and pay someone to care for your dependents while you are at work or looking for work.
American Opportunity Credit (AOTC) and Lifetime Learning Credit – The AOTC is paid for the first 4 years of higher education for qualified education expenses for a student. The max is $2,500 per student. But, if the credit cancels out what you owe in taxes, you can only receive up to $1K as a refund. To qualify, the student must be pursuing a degree, be enrolled at least half time for one semester, and not have claimed this credit for more than 4 years. Either yourself as the student or your parents can claim this with you as their dependent. The Lifetime Learning Credit is used after you have claimed all four years of the AOTC & are still in school or taking courses. This credit is up to $2K and not refundable, meaning the only thing that it can do is bring the taxes you owe to $0. And, you can use this credit for as long as you are in school. You need to have received a 1098-T from your school! Refer to the IRS site for the differences to see which one you may qualify for.
I know ya’ll, it’s a lot! These credits are only a few that you may be eligible to claim – there are a lot more! Keep in mind, they also have income limits so pay attention to all of the eligibility requirements. For more information and details, go to IRS.gov. There is a qualification assistant that can help you determine your eligibility. Thanks for reading and be on the lookout next week for Part II-B in this series – Tax Deductions. Write to you soon!