Last week we talked about some really useful tax deductions you might be able to take advantage of during the upcoming tax season. This week, we´ll be discussing 3 types of tax credits you might also qualify for. As the year is almost over, we want to make sure you are informed and prepared for filing your income tax return next year.
There are many types of tax credits you might be eligible for, which you can find on the IRS website. However, we will be talking about three of them only. First, we’ll talk about the tax credits for people with kids. Then, we’ll go over the different tax credits for investing in education or retirement accounts. Lastly, we’ll talk about a tax credit you can get for making “green” purchases, for both residential energy and electric vehicles.
Child Tax Credit
Thanks to the Child Tax Credit, you might be eligible for up to $2,000 for every kid you have, plus $500 for each non-child dependent, too. Something to take into account is that the amount of credit you qualify for depends on your total income. For the 2018 tax year, the phase-out begins at $200,000, or $400,000 if you file as married filing jointly.
The percentage of this credit can be anywhere between 20% and 35% of your expenses related to child and dependent care. If your family’s adjusted gross income is $15,000 or less, you qualify for 35%. This percentage will shrink one percentage point for every extra $2,000 addition to your AGI.
Investment on Education or Retirement Credit
Another quite useful tax credit is the Retirement Saver’s Credit. This credit can be anywhere from 10% to 50% of up to $2,000 in contributions we made to a retirement account. This includes IRAs, 401(k)s, 403 (b)s, and certain retirement plans. The percentage of this credit will depend on your AGI and filing status, yet it’s a credit worth checking if your income is less than $63,000.
Another quite useful tax credit is the American Opportunity Tax Credit, which depends on the qualifying education expenses of higher education students. This credit can be of up to $2,500 per student and includes tuition, activity fees, supplies, books, and equipment needed during your first four years of college. If your AGI is higher than $90,000, or $180,000 filing jointly, you might not qualify for this credit. However, parents claiming the student as a dependent might be able to take such credit, still.
Eco-Friendly Purchase Credit
There are two types of tax credits we can take for eco-friendly purchases we made this year. First, we have the Residential Energy Tax Credit, which can give you up to 30% of expenses for energy systems. This includes alternative energy equipment such as solar water heaters and solar panels.
Also, we have the Plug-In Electric-Drive Motor Vehicle Credit, which includes light trucks and passenger vehicles. The credit amount can be anywhere between $2,500 and $7,500 for having bought a plug-in electric vehicle. In order to qualify, the car must be new, as the IRS doesn’t count used or second-hand cars. Also, the vehicle must have four wheels, at least, and come with a rechargeable battery with a capacity of four kilowatt-hours as a minimum.
If you want to have more details about these or any other tax credits you might be eligible for, get in touch with us. We’ll be more than happy to answer all of your questions and give you the guidance you need.