The Difference Between Credits and Deductions
Many people may have never learned the difference between tax credits and tax deductions. The actual definition of a tax credit is something that reduces your actual tax amount that you have to pay. This is different from a deduction because a deduction only reduces your taxable income. This difference makes tax credits much more advantageous, and dollar for dollar the credit will be a better deal because it is directly subtracted from the tax owed. Here are a few tax credits that you may not know you qualify for.
The amount you paid for child care can be counted as a tax credit. The credit starts at thirty-five percent if your modificated gross income is less than $15,000 and reduces to twenty percent if your modificated gross income is more than $43,000. This goes to a maximum of $3,000 for one child and $6,000 for two or more children. The Internal Revenue Service requires you treat most home child care workers as employees of the household(one of the few exemptions to this rule are part-time babysitters under the age of 18). This credit is one of the most complicated credits to figure out, but nothing that is worthwhile is easy.
In order for students to retrieve costs associated with getting an education, there are two different credits that they can take advantage of: The Lifetime Learning Credit and the American Opportunity Credit. Only one may be used a year, so choose carefully. First, the Lifetime Learning Credit allows up to $2,000 for educational expenses enrolled in eligible educational institutions. A pursuit in a degree is not required to qualify for this credit. The American Opportunity Credit is a maximum credit of up to $2,500 per student, and is obtainable for four years of eduction to those pursuing a degree. Anyone whose modificated gross income is $80,000 or less or $160,000 or less for married couples filing jointly is not qualified for this credit.
These credits are great ways to reduce your tax that is due, and you definitely get the most bang for your buck if you take the time to find the right ways to save. Keep doing your homework and you’ll continue to save, you can only see if you’re qualified if you ask, so try this tax season to qualify for all the credits you can, because no one else will do it for you (for free at the minimum!) and happy savings, Everyone!