05 Aug What Are Some Tax Deductions and Credits You Are Entitled To?
Tax credits and tax deductions can help income taxpayers, primarily those in middle-income and low-income households, looking to reduce their taxes or maximize their tax refunds.
Both tax deductions and tax credits reduce how much you owe the IRS, but in different ways. A tax deduction is an amount that the government lets you deduct from your adjusted gross income (AGI), while tax credit gives you a dollar-for-dollar reduction in your bill.
Tax credits you might be entitled to are:
- Earned Income Tax Credit
Earned Income Tax Credit is determined by income and is phased according to filing status – single, married, or either of those with children. Your eligibility and the amount of the credit will be based on AGI, earned income, and investment income. However, you won’t qualify if your filing status is ‘married filing separately.’ Also, your investment income for the year has to be $3,600 or less. You may also be eligible if you’re self-employed.
- American Opportunity Tax Credit
This credit is a rebranded and expanded version of the Hope Credit, which helped families pay higher education costs.
- Child and Dependent Care Credit
This credit helps offset costs of daycare or babysitting and is available to people who must pay for childcare for dependents under age 13 so they can work or look for work. It’s also available for the costs of caring for family members of any age who are physically or mentally incapable of self-care.
- Savers Tax Credit
This credit is for eligible contributions to retirement plans, such as 401(k)s or investment retirement accounts. To qualify for this credit, you have to be over 18 years old, not be a full-time student, and not be dependent on another person’s return.
Some tax deductions you might be entitled to:
- Medical Expenses
If you paid your medical expenses out of pocket, there’s a chance you can deduct them on your taxes. However, you can deduct these expenses only if they exceed 7.5% of your AGI.
- Home/Mortgage Interest
This is one of the most significant tax deductions available to most home-owning families. You can deduct the interest up to $750,000 on a home mortgage. However, if you have a home equity loan, there’s a possibility that the interest on that may no longer be deductible.
- Childcare Expenses
If you pay for childcare so that your partner can attend school or work, you can claim up to $3,000 in expenses per child. The credit is worth 20-35% of your expenses, depending on your income.
- Rental Expenses
If you’re renting out an apartment or a room through a service like Airbnb, you have to report the income you receive from the rental, but you can also deduct any related expenses, such as cleaning costs, advertising, the share of mortgage or rent and utilities, decor or furnishings, etc.
There are numerous deductions and credits out there, and you want to be sure you’re getting the most out of them. Contact Golden Tax Relief, and let’s check taxes off your to-do list!