Tax Credits

Tax credits are very beneficial on your tax return, because they are a dollar-for-dollar savings and not just a deduction. Each tax credit has specific eligibility requirements; one of the main requirements is knowing your adjusted gross income (AGI). Usually, your AGI must fall between exact amounts to receive partial or the total amount of the credit.

Some common tax credits you may qualify for include:

  • Foreign Tax Credit
  • Child and Dependent Tax Credit
  • Education Credit
  • Retirement Savings Contributions Credit
  • Residential Energy Efficient Credit
  • Earned Income Tax Credit
  • Child Tax Credit
  • Recovery Rebate Credit
  • Adoption Credit
  • Electric Vehicle Tax Credit


Foreign Tax Credit

If you work and pay taxes in another country, you may get credit for them on your U.S. tax return. However, if you live in the U.S., the most common way is from your financial investments. Often, your financial advisor invests your money in stocks that have ties to different countries; they must pay taxes to those countries. If your financial statements show foreign taxes, you may be able to get credit on your tax return.

Child and Dependent Tax Credit

If your child is under thirteen, you pay for after-school programs, nannies, or other eligible dependent care, and your AGI falls in the specific range, you may qualify for this credit. You will need the care provider’s name or business name, address, social security number or EIN, and amount paid per child to receive the credit. The amount of credit you receive will depend on your AGI. This credit is different from the child advance tax payments you may have received during the tax year; see Child Tax Credit.

Education Tax Credit

There are two types of credits for education: the Lifetime Learning Credit (LLC) and the American Opportunity Tax Credit (AOTC). If you are a student, make sure to include your Form 1098-T and all your qualifying school expenses. The maximum you can receive is $2,000 for the LLC and $2,500 for AOTC, and it will depend on your AGI and enrollment as a full-time student. You can only claim the AOTC for the first four years of school.

Retirement Savings Contributions Credit

If you are employed and contribute to a 401K via work and your AGI falls within the following parameters: single less than 33,000; head of household less than $49,500; married filing jointly less than $66,000; you can get a portion of the credit. The requirements: you need to be 18 years old, cannot be a student, and cannot be claimed as dependent on someone else’s tax return.

Residential Energy Efficient Credit

You can get a credit if you own a home and have added energy-efficient products such as a solar water heater or a geothermal heat pump. Make sure what you are installing qualifies and include the amount in your tax return.

Earned Income Tax Credit

Before you file your tax returns, you may have already received a letter from the Internal Revenue Service notifying you that you may qualify for Earned Income Tax Credit. You must earn less than $57,414, investment income less than $10,000, a valid social security number, and no foreign income to be eligible for this credit.

Child Tax Credit

The maximum you can receive for this credit; children under seventeen can get up to $3,000, and children less than five years old can get up to $3,600. If you did qualify, you received half of these payments starting in July 2021. To calculate the exact credit on your 2021 tax year return, you will receive Form 6419 from the Internal Revenue Service indicating the child tax breakdown you received in 2021. If you have dependent ages between 19 to 24, you can get a $500 credit: the dependent needs to be a full-time college student.

Recovery Rebate Credit

If you did not receive the total amount or any amount on the third stimulus check and you were eligible, you can get this credit on your 2021 tax return. Enter the amount received, and it will calculate the remaining as a credit.

Adoption Credit

If you adopt a child, you can get a credit of up to $14,400 per child. You will need to gather an itemized list of expenses such as attorney fees, adoption fees, anything related to the adoption and add them to your tax return.

Electric Vehicle Tax Credit

If you purchased a new plug-in electric vehicle in 2021, you could receive up to $7,500 in Electric Vehicle Tax Credit on your tax return. You have the be the original owner, and not all cars qualify. You can always check the IRS website to see what cars qualify

To get the most out of taxes and see if you qualify for a credit, it is always good to talk to a tax professional.

Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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