There was a time many years ago that taxes seemed a lot less complicated. Before I married and had kids filing my tax return consisted of filling out a one-page Form 1040 EZ with an actual pen on actual paper and sending it in, in an envelope, to the IRS via the U.S. Postal service. Yes, that’s how everyone used to do taxes in the past. Even after I first got married our tax forms will still very simple, but over the years as the number of kids increased and the sources of income have continued to fluctuate, the tax filing process has become increasingly complex and often frustrating. If this sound like you, then now you know you’re not alone.
Knowing Is Half the Battle
Of course, tax software and online filing services have made the process quicker and easier, in most cases, but even when I first discovered these services I was still far from perfect. It turns out, as I’ve learned to do my own taxes over the years I have come to the realization that there were a lot of things I was missing out on. However, with time and trial comes experience. While I still wouldn’t consider myself to be a tax expert per say, I have learned a valuable thing or two about filing a tax return over the years, including making sure I get all the tax credits I deserve. And believe me when I tell you that what you don’t know can hurt you when it comes to tax credits.
Refundable and Nonrefundable Credits
The IRS is by no means on a mission to give you extra money. Their objective is to squeeze from you every last penny you owe in taxes till they’ve collected everything they’re entitled to. However, there are numerous tax credits available that can help you save a lot of money. And in fact, it turns out that a lot of taxpayers are eligible to receive many of these credits, but they just don’t realize it; which amounts to them giving away a lot of money that is rightfully theirs to keep. The IRS splits tax credits into two types: refundable and nonrefundable. A refundable credit means you get a refund even if it’s more than what you actually owe. So it really is a free handout. A refundable credit means you get refunded only up to the amount you owe or paid in taxes. Both types of credits save you money, with refundable credits sometimes even putting free money in your pockets.
Tax Credit Categories
These credits fall into many different categories, including:
- Family and Dependents
- Health Care
- Income and Savings
- Home Owners
- Electric Vehicle Credit
Common Tax Credits
There are multiple different credits in each of these categories and they all have their own rules and regulations. Lets take a look at a few of them just to give you an idea at what’s available.
- Earned Income Credit – this is one of the most readily available but yet most commonly missed tax credits. In fact, according to the IRS roughly one fourth, or 25 percent, of all taxpayers eligible for this credit don’t claim it. Either they aren’t aware of it or they think it’s too complicated to determine if they qualify. This is a big one because it is a refundable credit. That is free money if you qualify and in 2015 the amount ranged from $500 all the way up to more than $6,200. There are limitations but be sure to see if you qualify before bypassing this tax credit opportunity. To learn more about the EIC click here.
- Child and Dependent Care Credit – many parents or guardians miss out on this important credit as well. One common reason is that they pay their child care bills through a reimbursement account at work. Don’t let that happen. The law allows you up to $5,000 of childcare expenses through one of these accounts but up to $6,000 in total expenses can qualify for the credit. So make sure you claim the full amount possible. To learn more about this credit click here.
- Child Tax Credit – kids are expensive so make sure you claim the full amount possible for each child you have. Plus, the additional child tax credit, for those with who qualify, is a refundable credit, which can be especially nice for those with more than two kids. Learn more about the Child Tax Credit here.
- Retirement Savings Contributions Credit – this credit is designed to assist low- and middle-income taxpayers who have an adjusted gross income of less than $30,000 save for retirement ($45,000 if head of household; $60,000 if married filing jointly). Click here to learn more.
- Repayment of the First-Time Homebuyer Credit – this is a very specific credit but if you purchased your first home in 2008, 2009 or 2010 then you might qualify. If you do, this credit will either increase your refund or lower your tax bill. For more info click here.
- The Premium Tax Credit – this is a relatively new tax credit that’s associated with the nation’s new health insurance laws. This is a refundable credit aimed at helping families and individuals with lower income afford health insurance that is purchased through the Health Insurance Marketplace. To see if you qualify click here.
Don’t Miss Out
This list is far from comprehensive, so be sure to check out the many other tax credits available by visiting the Credit and Deductions page on IRS.org. The bottom line when it comes to tax credits is you don’t want to miss out on what’s coming to you. I know for certain that I could’ve qualified for the earned income credit several times when I was younger but I wasn’t aware it even existed, or how to file for it. That cost me a lot of money that I certainly could’ve used, or enjoyed. So make sure the next time you file your tax return you take a closer look at any and all possible tax credits you might qualify for. Chances are you’ll end up paying less in taxes and you might even get more back than you actually paid.