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Improve your personal finances with these Tax Credits

10th December 2019 Print

Most people don't enjoy doing their taxes, but if you do your homework, you might be able to find some great opportunities for savings. This can be a real boost to your personal finances. For people with moderate or low incomes, these credits can go a long way toward lowering what you pay, and some are available no matter how much money you make. These are different from deductions. Deductions lower your taxable income and may put you in a lower tax bracket. These actually reduce the amount you owe or can increase your refund. This means that they are generally more valuable than deductions.

Earned Income Tax Credit

How much money you make, your marital status and the number of children you have determines whether you qualify for this credit and how much it will be. You need to be between the ages of 25 and 64, and if you are married, you must file jointly. You will be ineligible if you earn more than a certain amount in investment income. Self-employed people are eligible for it as well as people who are regular employees.

Child Tax Credit

The Tax Cuts and Jobs Act doubled the amount you can claim with the child tax credit and raised the maximum income level for claiming it. The children you claim must be 16 or younger at the end of the tax year. There is a credit for each child of up to $2,000 depending on your income. The more money you make, the less you will receive, and above a certain threshold, you do not qualify.

Child and Dependent Tax Credit

This is for children who are 16 and older and for adult dependents. This also covers babysitting or child care costs for children who are younger than 13. A dependent adult might include a spouse or parent who requires care. The child care expenses covered are supposed to be for the times you or your spouse were going to school, at work or looking for work. You can claim 20% to 35% of your expenses that qualify. Married couples must both be working unless one is disabled, and they must file jointly. Although the percentage you can claim drops as your income goes up, there is no upper income limit.

American Opportunity Tax Credit

This is one of two credits available for educational expenses. It offers more, but it also has more stringent qualifications. You need to be taking classes at least half-time for at least one academic period in the total tax year. This is for a typical four-year degree program, so if it takes you longer to finish your degree, you cannot claim after the fourth year.

Lifetime Learning Credit

This is not tied to a particular course of study. You may qualify even if you are only taking one class for your own enrichment. The income requirements are capped lower than for the American Opportunity. You can claim this on the same return as the American Opportunity but not for the same student.