Credits and Deductions available to individual taxpayers
If you are a moderate or low-income taxpayer, you may find the payment of your taxes difficult and burdensome. Taxes are no one’s favorite thing as they take money from you; nobody likes to part with their money. You may consider the option of completely avoiding paying your taxes but that is a federal crime that will have bad consequences at the end of the day.
Nevertheless, there are legal ways to reduce your tax burden and make it as bearable as possible. If you wish to reduce your tax liability to the tiniest minimum, then two ways you should be looking at as a low-income taxpayer are credits and deductions. Including both credits and deductions on your tax return will reduce the amount of tax debt you have, but they will achieve that in different ways.
Tax credits directly reduce the tax you owe while tax deductions reduce your taxable income. While tax credits and tax deductions are often spoken of in the same breath, they are not the same and both terms are not to be used interchangeably. Credits are more powerful than deductions.
As a taxpayer hoping to take advantage of tax relief vehicles, it is important to know what type of tax credits and deductions are available to you and how to take advantage of them.
Some credits available to individual taxpayers are listed below:
- Earned income tax credit: This is an advantage for people whose jobs pay moderately or very low. An earned income tax credit reduces the amount of tax an individual will have to pay and may even grant them a refund. The refund may also be a significant amount depending on your eligibility. It can be used by both singles and married taxpayers filing individually. This tax credit becomes more powerful and the possible income becomes greater the lower you make and the more children you have.
- Child and dependant care credit: This is a credit you can claim if you pay someone to take care of your child who is under 13 and unable to take care of themself. It can also be claimed if you have a family member who is unable to care for themself.
- Credits for the elderly and disabled: Your tax amount can be reduced through this credit if you qualify.
- Savers credit: This was formerly known as the retirement savers credit before the name was shortened. It was designed as an incentive for Americans to save towards their own retirement. Saving for retirement is quite significant because a lot of people reach old age and realize that they have little to nothing saved. This results in a lot of elderly people living in poverty because they have to live completely off Social Security benefits. Social security was designed to serve as supplementary income.
- Child tax credit (CTC): This is appropriate for people with children. The child tax credit gives you up to $2,000 per qualifying child. One of the main requirements for a qualifying child is that they have to be younger than 17 and they have to be dependent on you.
- Lifetime learning credit: This credit can be used beyond the first four years of higher education. You do have to meet strict requirements just as with any other credit, one of such requirements being that your school must be eligible, and must be enrolled in an eligible program.
Other credits available include Foreign Tax Credit, Excess, Social Security and RRTA Tax Withheld, Credit for Tax on Undistributed Capital Gain, Nonrefundable Credit for Prior Year Minimum Tax, and more.
On the other hand, some deductions available to taxpayers include:
- Home office deductions: This is applicable to people who use their homes as an office for business. It gives you the liberty to deduct expenses for the business use of their homes. To qualify, your home must be the principal place of your business.
- Medical and dental expenses: this includes the payment for diagnosis, treatment, and mitigation of anything that affects the body’s normal functionality. You can only include medical bills paid during the year.
- Deductions on sale of a home: When you sell your primary place of residence and you meet certain criteria, you won’t be taxed on some of your profit.
The tax system is a very complicated one and these credits involve a lot of requirements and stipulations. Additionally, there are more credits and deductions available asides the ones mentioned above.
We can help you find out if you qualify for tax relief through credits and deductions and get you through the process of claiming them. Contact us today and we will be happy to help.
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