How Personal Tax Credits Can Save You Money

Tax season is here and many people are anxious to find out how much money they will get back on their return.  If you owe taxes, making use of available personal tax credits can lessen the amount you will have to pay. If you are claiming a refund, using these same tax credits will help put more money back into your pocket.

Understanding tax credits versus deductions

Tax credits are different from deductions.  Deductions are expenses you incurred that the IRS doesn’t think you should be taxed on based on the level of your income.

The easiest way to understand how a tax credit works is to think of it like grocery shopping. When you grocery shop, the cashier rings up your purchases and gives you the total amount you owe. To lessen this amount we may present coupons which deduct small amounts from the total. After applying the coupons and discounts the amount that is left is now the total of what you owe.  You may not have coupons for every item you buy or they may not be available.

This is very similar to how tax credits work.  Think of your grocery bill as your income.  The higher your income, the more tax you owe.  The coupons are tax credits.  The more “coupons” you have, the less tax you owe.

There are many types of tax credits.  Some are standard each year; some are special and may or may not exist from one year to the next.

Personal tax credits

Earned Income Tax Credit

Adoption Tax Credit

Retirement Savings Contribution Credit

Credit for the Elderly or Disabled

Child Care Tax Credit

Child Tax Credit

Foreign Tax Credit

Energy Tax Credits

Hybrid Car Tax Credit

Educational Tax credits

The Lifetime Learning Credit

American Opportunity Tax Credit

The Hope Tax Credit

Economic Recovery credits

Making Work Pay Credit

First-time Homebuyers Credit

These lists represent just a few.  Since there are many tax credits available, you may qualify for at least one or possibly more.  Using an online tax preparation site like www.efiletaxreturns.com will help you find the credits that apply to you based on how you answer simple questions.  This saves you the hassle of looking up every credit you may or may not qualify for and determining how much of the credit you are eligible to receive.

Tax credits will lessen the amount of your income that is taxable and put money back into your pocket where it belongs.