Paying taxes is an inescapable part of modern life. That’s not to say you can’t find ways to pay less. In fact, the tax code features a number of credits and deductions that could significantly reduce your tax bill or dramatically inflate your refund. Tax credits are particularly valuable as they provide a dollar-for-dollar reduction in your tax liability.
Despite this, by failing to take advantage of their available credits, many Americans leave money on the table every year. That ends here. Today, we’ll explore a few of the best, and most lucrative, tax credits available to American taxpayers in 2023.
Child Tax Credit
Parents or guardians may qualify for a credit valued at $2,000 per qualifying child five and under, and $3,000 for children between the ages of six and seventeen years old. To qualify, each child must be a U.S. citizen and be properly claimed as a dependent on your return.
Parents or guardians are also only eligible if their adjusted gross income is less than $200,000 when filing individually or less than $400,000 when filing a joint return.
Child and Dependent Care Credit
This credit is designed to help taxpayers cover a portion of the costs of caring for a child under 13, a spouse or parent unable to care for themselves, or another dependent, while the taxpayer works. Generally, the CDCC covers up to 35% of $3,000 of expenses for one dependent or $6,000 for two or more dependents.
It can be a valuable way for taxpayers to offset the costs of child care and other dependent care expenses, allowing them to continue working while ensuring that their loved ones receive the care they need.
American Opportunity Tax Credit
The American opportunity credit is designed to help make undergraduate education more affordable. College students can use it to lower their tax bill by up to $2,500. More specifically, the valuable tax credit lets eligible students claim all of the first $2,000 spent on tuition, school fees, and school supplies and 25% of the next $2,000. That’s a total of $2,500!
Lifetime Learning Credit
The lifetime learning credit allows you to claim 20% of the first $10,000 paid towards tuition and fees for eligible courses. Similar to the American Opportunity Tax Credit, the LLC doesn’t cover living expenses or transportation costs as eligible expenses, but you can claim books or supplies required for coursework.
Earned Income Tax Credit
The Earned Income Tax Credit is a tax credit based on income and family size. For taxpayers with an adjusted gross income of less than $59,000, the EITC can provide a credit of between $560 and $6,935. This credit can be a valuable way for low- to moderate-income taxpayers to reduce their tax liability or receive a larger refund.
The Saver’s Credit is a tax credit that provides a benefit to eligible taxpayers who contribute to an IRA, 401(k), 403(b), or certain other retirement plans. The credit can range from 10% to 50% of up to $2,000 in contributions ($4,000 for those filing jointly), depending on your filing status and income. The percentage of the credit increases as your income decreases, making it an excellent option for low- to moderate-income taxpayers who are saving for retirement.
The adoption credit credit covers up to $14,890 in adoption costs per child, but the credit amount begins to decrease incrementally at certain income levels. For the 2022 tax year, the credit phases out completely if your modified adjusted gross income exceeds $263,410.
The credit is designed to offset the significant costs associated with adoption, but it’s important to note that specific eligibility requirements and credit amounts can vary based on individual circumstances.
Electric Vehicle Tax Credit
The EV tax credit is a nonrefundable credit available to eligible taxpayers who purchase an electric vehicle. The credit has been significantly expanded for the 2023 tax year to also include used electric vehicles. This expansion can provide a significant benefit to those who are interested in purchasing an electric vehicle or upgrading their current vehicle to an electric model.
Keep More Of Your Money!
Tax credits can significantly reduce your tax bill or increase your refund, and the importance of taking advantage of them can’t be overstated. 2023 is full of opportunities to save too. From the child tax credit, to the electric vehicle tax credit, to the savers credit, taxpayers have lots of options to choose from.
It is important to note that not all tax credits may apply to your specific situation. All the more reason to continue reading and searching online. Failing that, you could always enlist the help of a tax professional or a reliable tax software.