Even better than a tax deduction is a tax credit. A tax credit reduces the amount of taxes you owe dollar-for-dollar. For example, a tax credit of $1,000 cuts your tax bill by the same amount.
With a deduction, the tax savings are only a fraction of the amount. For example, if you are in the 25% income tax bracket and have a $1,000 deduction, your tax savings is $250.
Here are some of the major categories of tax credits:
Earned Income Credit. The earned income credit is aimed at reducing the tax burden on lower-income taxpayers. If you file for the earned income credit, you must submit Schedule EIC.
Saver’s Tax Credit. This tax credit provides an extra incentive to fund a retirement plan.
Child-Related Credits. The four major child-related tax credits are the tax credit for child and dependent care expenses, the child tax credit, the adoption credit and the additional child tax credit.
Education Credits. The main tax credits for higher education are the Hope and lifetime learning credits.
The Hope Credit can be used for your first two years of college.
The Lifetime Learning Credit applies to tuition costs for undergraduates, graduates and those improving job skills through a training program.
Other tax credits that are widely used include credits for elderly or disabled persons, mortgage interest credit and a credit for refurbishing low-income housing.
Call StrategyOne today to see if you qualify for these or other Credits.