If you haven’t started your 2023 taxes yet, you may want to get moving. Although the April 15 filing deadline is still more than a month and a half away, the sooner you get through the process, the sooner your tax refund, if applicable, can hit your bank account.
When filing your taxes, it’s a good idea to try to snag as many tax credits as you can. A tax credit is a dollar-for-dollar reduction of your tax liability. If you owe the IRS $1,000 but then claim a $1,000 credit, your tax bill is reduced to $0.
Unlike tax deductions, which exempt a portion of your income from taxes, your ability to claim a tax credit doesn’t hinge on whether you itemize on your return versus claim the standard deduction. Also, a tax credit has the same value no matter your income or tax bracket, whereas with tax deductions, the higher your bracket, the more they’re worth.
Here are some potentially valuable tax credits to keep on your radar this year as you work on your 2023 return.
1. The Child Tax Credit
The Child Tax Credit got a lot of press in 2021 when lawmakers boosted it as part of their massive pandemic relief package. For 2023 tax purposes, you can claim up to $2,000 per child under age 17 in your household. Of that, up to $1,600 is refundable. Lawmakers, however, are considering a bill that could expand refundability for the Child Tax Credit for 2023.
Now, as is the case for many tax credits, there are income limits associated with the Child Tax Credit. The credit starts to phase out if you earn $200,000 as a single tax-filer or $400,000 as a joint filer.
2. The Earned Income Tax Credit
If you’re a low or moderate earner, you may be eligible for the Earned Income Tax Credit (EITC). The nice thing about this credit is that it’s fully refundable.
The amount the EITC is worth depends on your income and the number of qualifying children in your household. But you should know that it has a maximum value of $7,430 in 2023. And again, if you owe the IRS $0, you may be eligible for a $7,430 check, since the EITC is completely refundable.
3. The Child and Dependent Care Credit
The Child and Dependent Care Credit applies to parents who pay for child care so they can work or look for work. Expenses like summer camp (daytime only, not sleepaway) and daycare qualify.
Calculating the credit is a little tricky. You’re allowed to deduct anywhere between 20% and 35% of up to $3,000 in child care expenses for a single child, or $6,000 for two or more children. So as an example, if you have one child and spend $8,000 a year on care, you can deduct between 20% and 35% of up to your first $3,000 in expenses. Also, the credit is nonrefundable.
4. The Lifetime Learning Credit
The Lifetime Learning Credit is a credit that may apply to you if you paid for post-secondary education in 2023. The credit is nonrefundable, and it allows you to claim 20% of up to $10,000 in eligible expenses for a maximum credit of $2,000.
As an example, if you spent $6,000 on education in 2023, you can claim 20%, or $1,200. If you spent $12,000, you can claim 20% of your first $10,000 in costs, or $2,000. The credit begins to phase out once your income reaches $80,000 as a single tax-filer or $160,000 as a joint filer.
5. The American Opportunity Tax Credit
The American Opportunity Tax Credit is another education-related credit you may be eligible for if you paid for higher education in 2023 and were within your first four years of doing so on a per-student basis. The credit is 40% refundable, and it’s worth up to $2,500.
There are income limits associated with this credit, and they’re the same as the limits for the Lifetime Learning Credit. Also, you can’t claim the American Opportunity Credit in the same year as you claim the Lifetime Learning Credit on a per-student basis.
Any tax credit you can claim has the potential to shave money off of your IRS bill. It pays to read up on these and other credits to see which ones you’re eligible for. Better yet, consult a tax professional so they can guide you through the filing process and help ensure you don’t miss out on any tax benefits you’re entitled to.
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