Tax

Save Money with Tax Credits

Save Money with Tax Credits

November 30
00:00 -0001

Save Money with Tax Credits

What is a Tax Credit?
A tax credit, similar to a tax deduction, reduces the total amount of taxes owed. In the United States, there are numerous forms of tax credits available to taxpayers; these forms depend on the current tax laws of the underlying government agency.
The majority of tax credits are refundable, meaning they diminish a taxpayer’s taxable liability below zero. As a result, a refundable tax credit can in essence, have the effect of returning more money to the taxpayer than the amount contributed to the tax system in the given fiscal year. Examples of a refundable tax credit in the United States include the earned income tax credit.
A tax credit is the total sum deducted from the amount a taxpayer owes to the underlying state or Federal Government. Tax credits may be granted for any type of tax, such as property taxes, capital gains taxes, and the income tax. 
Tax credits may be granted to recognize that the tax payer has already paid the taxes owed (this typically happens with the income tax, the money taken out from each individual paycheck is redistributed in the form of a tax credit) or to encourage spending behaviors such as investment into the economy. 
The type of tax credit offered will vary based on the government agency’s taxing model. The majority of taxation systems refer to a tax credit as all taxes that are paid indirectly, such as taxes withheld by payers of income. Other intricacies within the United States’ taxation model will treat payments of certain taxes as refundable forms of payment in specific cases. 
An example of the latter includes the United States’ credit for Federal highway use; a form of tax credit paid with respect to diesel fuel or gasoline that is used on public highways—this form of tax credit may be claimed as a payment on the federal income tax return.
Individual Income Tax Credit:
Income taxations systems typically grant a variety of tax credits to individual taxpayers. These forms of tax credits typically include payments available to both ‘unique’ individuals and the average tax payer. 
Several tax systems will provide tax credits to lower income individuals. These tax credits are based on family status, income, work status, and a variety of other factors. The United States grants the following low income tax credits:
Earned Income Credit: A refundable tax credit granted as a percentage of income earned by a low-income individual. 
Tax Credits for the Elderly and Disabled: A nonrefundable tax credit awarded to the elderly and disabled up to $1,125 annually.
Retirement Savings Credit: A nonrefundable tax credit of up to 50% of contributions to IRAs and similar retirement plans. This tax credit is phased out at incomes above $16,000
Mortgage Interest Credit: A nonrefundable tax credit that is limited to $2,000 and is granted under specific mortgage plans.
Other tax credits will be offered to families with children; these tax credits are supplied on a per child basis or as a credit for child care expenses.
Other systems will offer tax credits used to subsidize education payments. The United States has two forms of nonrefundable credits for educations: the Hope Credit and the Lifetime Learning Credit.
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