If you’re at all like us, you spend all year round saving receipts in order to write off certain expenses as deductions. Education, business, whatever — if it’s deductible, we’re happy.
But while we’re obsessing over deductions, it’s easy to forget all about tax credits. That’s a downright shame, too: dollar for dollar, we’re better off trying to get more tax credits than deductions. Income tax deductions reduce taxable income. A $500 deduction can bring your actual bill down by between $50 and $175, depending on your tax bracket. But a $500 tax credit will flat out reduce your tax bill by $500.
Furthermore, there’s an upper limit on the tax deductions you can claim. If you zero out your tax bill with tax deductions, don’t bother collecting any more receipts. But some tax credits are refundable: even if you don’t owe any taxes, you can get money back.
10 Common Tax Credits
- Earned Income Tax Credit
- Saver’s Tax Credit
- Child Tax Credit
- Adoption Tax Credit
- Child and Dependent Care Tax Credit
- Education Tax Credits
- Social Security Tax Credit
- Foreign Tax Credit
- AMT Credit
- First-Time Homebuyer Credit
There are plenty of less well-known tax credits available. You can pick up a credit for making your home more energy efficient, for being a senior citizen and far more. It’s worth reading up about your own situation to make sure that you’re not missing out on any potential tax credits.