A Tax Credit is an Amount of Money a Taxpayer is Allowed to Subtract From His or Her Income Taxes Owed.
There are two types of tax credits:
- A nonrefundable tax credit – This means that a taxpayer can get a refund only up to the amount that is owed.
- A refundable tax credit – This means a tax payer can get a refund, even if it’s more than what you owe.
What are some of the tax credits available for a taxpayer to utilize:
- A few of the Nonrefundable Personal Credits are listed below:
- Child and Dependent Care Credits – A Taxpayer can claim a nonrefundable tax credit for a portion of qualifying dependent care expenses paid during the tax year if the taxpayer is gainfully employed.
- Elderly or Disabled Credit – A Taxpayer can claim a nonrefundable tax credit if he or she is a) aged 65 before the close of the year, or under age 65, but retired and permanently and totally disabled when retired.
- Education Credits (American Opportunity and Lifetime Learning Credits) – A Taxpayer can claim two types of educational related tax credits for qualified tuition and related expenses paid or incurred during the tax year.
- Retirement Savings Contributions Credit – A Taxpayer who is eligible low-income may claim a nonrefundable credit for contributions and elective deferrals to certain retirement savings contribution credit.
- A few of the Refundable Personal Credits are listed below:
- Credit for Taxes withheld on Wages – A Taxpayer is allowed a credit against his or her income tax liability for income taxes withheld from their salaries and wages.
- Earned Income Credit – A Taxpayer is allowed a refundable credit based on a percentage of his or her earned income (up to a certain threshold amount) and the number of dependents claimed as qualifying children.
- Healthcare Credits – A Taxpayer is allowed to claim a refundable credit to assist in paying for individual or family health coverage obtained through a marketplace exchange in his or her state of residency.
- Alternative Motor Vehicle Credit – A Taxpayer may claim a credit for an alternative motor vehicle placed in service during the tax year.
A Tax Deduction Reduces the Amount of Income that is Subject to Taxation by Federal and State Governments
Some Itemized Deductions Includes:
- Medical & Dental Expenses
- Charitable Contributions
- Mortgage Interests
- State & Local Taxes Paid
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