Tax deductions aren’t the only things to consider when looking for ways to reduce your tax bill. There are a number of tax credits that you may be able to claim. A tax credit reduces your tax liability dollar for dollar (and, in some instances, may be fully or partially “refundable” to the extent of any excess credit).
Child-Related Credits
In 2021, parents of children under age 18 may claim a child tax credit of up to $3,000 per qualified child ($3,600 for a child under six years old). The child tax credit is phased out for higher income taxpayers. A different credit of up to $14,440 (for 2021) is available for the payment of qualified adoption expenses, such as adoption fees, attorney fees, and court costs. The credit is phased out at certain income levels, and there are certain restrictions as to the tax year in which the credit is available. Look into claiming the child and dependent care credit if you pay for the care of a child under age 13 while you work. It’s available for a percentage of up to $8,000 of qualifying expenses ($16,000 for two or more dependents) in 2021. This credit isn’t confined to child care expenses — it may also be applicable for the care of a disabled spouse or another adult dependent.
Higher Education Credits
The American Opportunity credit can be as much as $2,500 annually (per student) for the payment of tuition and related expenses for the first four years of college. A different credit — known as the Lifetime Learning credit — is available for undergraduate or graduate tuition and for job training courses (maximum credit of $2,000 per tax return). You’re not allowed to claim both credits for the same student’s expenses, and both credits are subject to income-based phaseouts and other requirements.
Sometimes Overlooked
One credit that taxpayers sometimes miss is the credit for excess Social Security tax withheld. If you work for two or more employers and your combined wages total more than the Social Security taxable wage base ($142,800 in 2021), too much Social Security tax will be withheld from your pay. You can claim the excess as a credit against your income tax. The alternative minimum tax (AMT) credit is another credit that’s easy to overlook. If you paid the AMT last year, you may be able to take a credit for at least some of the AMT you paid. The credit is available only for AMT paid with respect to certain “deferral preference” items, such as the adjustment required when incentive stock options are exercised.
Your tax professional can provide more details regarding these and other tax credits that may be available to you.
From small businesses to individuals, our Fairfax, VA CPA firm applies the same level of dedication to every client, with sound tax strategies and unsurpassed attention to detail. Call our office now at 703-971-2422 to discover how we can decrease your tax obligations. We welcome new clients and offer a free consultation so contact us today.