Tax credits are powerful tools that directly reduce your tax liability, dollar for dollar. Unlike deductions designed to reduce your taxable income, tax credits directly reduce the amount of tax you owe. Tax credits are a great way to save money on your taxes because they can help to reduce your overall tax burden or even entitle you to a tax refund. Read on to learn more about the tax credits you don’t want to miss - and how to determine your eligibility.
A vast array of credits are available, but of course not all of them are applicable to every situation. For this reason, it's essential to do your research to determine which, if any, you may be eligible for. Some of the most common examples include credits such as these:
- Earned Income Tax Credit (EITC): The EITC is a refundable tax credit that can help low- and moderate-income working families; the amount of the credit you can claim will depend on your income and the size of your household.
- Child Tax Credit (CTC): The CTC is a refundable tax credit intended to assist families with children in the home. The amount of credit you can claim depends on the number of qualifying children you have and your household income.
- Child and Dependent Care Credit: The Child and Dependent Care Credit is intended to help families manage the cost of childcare and, as with most tax credits, will depend on your income and expenses.
- American Opportunity Tax Credit (AOTC): Parents of younger children aren't the only ones who may be entitled to tax credits. For example, The AOTC tax credit is intended for college students and their families.
- Lifetime Learning Credit (LLC): Open to young adults and older students alike, the LLC allows you to claim 20% of the first $10,000 spent on tuition and fees for continuing education. Living and transportation expenses are not eligible, but books and supplies required for coursework are eligible.
These are just a few of the credits, but there are other deductions and tax tools that may be available to you. If you think you may be eligible for tax credits, discussing your family situation with a knowledgeable, professional CPA is crucial. A tax expert can help you determine your eligibility and to file your taxes in a manner that allows you to claim all the credits you are entitled to under current U.S. tax laws. Advance tax planning will ensure you don't leave money on the table.
Why Discussing Tax Credits with a CPA Matters
You know your family situation can change year-to-year, but you may not realize how many of those changes can potentially affect your eligibility for tax credits. For example, having a child may qualify you for the Child Tax Credit. If you get married (or divorced), your filing status could change, and those changes could potentially affect your eligibility for certain credits. If you change jobs or your income changes significantly, you may find yourself eligible for other credits, or ineligible for credits you have claimed in the past. As tax laws are changing all the time, it’s important to keep your CPA up-to-date on your circumstances in order for him or her to determine exactly where your eligibility falls within the broad array of tax laws.
Tax laws and the intricacies surrounding credits can also change from one year to the next. Discussing your family and living situation with your CPA every year is the best way to ensure you claim all the tax credits you and your household are entitled to.
Getting the Most Benefit Out of Tax Credits
To unlock information about tax credits and ensure nothing is overlooked, you should maintain ongoing communication with a trustworthy, professional CPA firm - not just at tax time, but throughout the year. Strategic tax planning can go a long way in ensuring your eligibility for certain tax credits when it is time to file.
By working with a trusted firm like Myrick CPA, you’ll receive expert advice tailored to your specific circumstances, maximizing your tax savings and working toward financial peace of mind. Contact Myrick CPA today to learn more about tax credits, your potential eligibility, and how you can leverage them for maximum benefit.