Tax Credits and Tax Deductions – What Are They?

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:

1. A nonrefundable tax credit – This means that a taxpayer can get a refund only up to the amount that is owed.
2. 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

For more information and insight email us at [email protected] or contact us at (301) 974-4568.