This article is accurate for returns filed through tax year 2017. Under the Tax Cuts and Jobs Act, some of the laws mentioned changed beginning in 2018. Learn more about the updated tax laws enacted under the Tax Cuts and Jobs Act here.
“What can I claim on my taxes?” is a question we hear a lot—especially from tax filers who are disappointed with the status of their return. If you feel like you are paying too much or not getting enough of a refund, it’s time to start looking at possible tax deductions.
Whether you expect a refund or are preparing to owe extra, claiming tax credits for which you are eligible will help improve your return. These federal tax incentives consist of various types of tax credits, including family tax credits, tax credits for students, and many more. They’re supposed to be used by those who qualify, which means you’re effectively turning down free money if you fail to claim your credit(s).
Of course, in order to claim tax rebates on your return, you need to be aware of those credits in the first place. Many people are surprised to learn that they are eligible for certain credits, and are disappointed when they find that those same credits could have been claimed in previous years. So don’t let free money go floating by while you pay too much on your taxes: take the time to learn about tax credits and stake claim to what is rightfully yours.
We’re going to run through five of the lesser-known tax credits. It is unlikely that you will be eligible for all of these credits. In fact, you might not be eligible for any of them. But you won’t know unless you check, so take a moment to review the credits listed below and see if any of them apply to your tax situation.
1. Earned Income Tax Credit
We start our list with one of the most popular tax credits—the Earned Income Tax Credit, also known as the EITC (or just EIC). This credit is meant for low- to moderate-income taxpayers, both individuals and couples. In order to claim the credit, a taxpayer needs to have a taxable income which falls below a specific threshold, based on his or her tax filing status.
For example, a single taxpayer with no qualifying children claimed would need to have an adjusted gross income (AGI) of less than $15,010 for the 2017 tax year in order to be eligible for this credit. On the other end of the spectrum, if you are married and filing jointly—and you have three or more qualifying children—the AGI limit for this credit is $53,930. You will want to consult the EITC limits table to check on your specific circumstance between those two extremes.
If you do qualify for this credit, there is a maximum credit amount that can be claimed. Going back to our previous example, the maximum credit is $510 for those filing with no qualifying children, while it is $6,318 for those filing with three or more qualifying kids.
2. Saver’s Credit
The federal government likes to encourage people to save money. Generally speaking, a healthy economy features a large percentage of people who are saving money for the future. To encourage this activity, there are tax advantages to making certain kinds of investments. One of those advantages is known as the Saver’s Credit.
Simply put, you can gain a tax advantage by putting away money for your retirement. Specifically, if you make eligible contributions to your IRA, or to your employer-sponsored retirement plan, you may be able to claim a credit on your return. The value of this credit will depend on the amount of your contribution, as well as your filing status and your annual income.
If you are married filing jointly, for instance, and your AGI is less than $37,000, you may be able to take a credit for 50% of your contribution (up to $4,000). On the other hand, someone with the same filing status and an income over $62,000 will not be eligible for any credit at all.
3. Child and Dependent Care Credit
If you have young children, there’s a good chance that paying for care is one of your biggest expenses. For some relief from this expense, you will want to check on your eligibility for the child and dependent care credit.
Your eligibility for this credit will depend on a couple of factors. For one thing, the childcare in question must have been used in order to allow you to work or actively look for work. Also, you will not be eligible for this credit if you are married and filing separately.
If you do qualify for the credit, it will be a percentage of the total work-related childcare expenses you incurred. That percentage will be determined by adjusted gross income. You will be able to claim a maximum of $3,000 in expenses for one qualifying individual, or a maximum of $6,000 for two or more individuals. Should you decide to claim this credit on your return, be sure to read all of the conditions carefully and calculate your figures according to the guidelines provided.
4. Child Tax Credit
In addition to paying for childcare, the act of raising a child is just plain expensive! The costs are too many to name, but they can include health insurance, food, diapers, clothes, and much more. In fact, young parents are often overwhelmed by the sheer number of expenses that come along with their new bundles of joy. Again, the tax code attempts to provide some relief for those in this position.
While this credit alone is certainly not going to offset all the money you have spent on your kids throughout the year, it can help. You may be able to save as much as $1,000 per child, as long as each child qualifies for the credit.
To start, the child needs to be under the age of 17 at the end of the tax year in question. The child must also be claimed as a dependent on your return, meaning each child you claim must meet all of the requirements for being considered a dependent. For each qualifying child, you will receive a tax credit for an amount based on your modified adjusted gross income.
5. Energy Credits
The final credit on our list is actually a couple different credits rolled into one category. The title of ‘Energy Credits’ combines the Residential Energy Efficient Property Credit and the Nonbusiness Energy Property Credit. Basically, these are credits used as incentives to motivate homeowners to make environmentally friendly changes to their property.
For instance, if you have installed solar panels on your home, you may be eligible for a tax credit (often referred to as “solar credits”). But solar panels are just one example of ways in which you may be able to qualify for a home efficiency tax credit.
If an investment you have made in your property qualifies under the Residential Energy Efficient Property Credit, you may be able to claim 30% of the cost of the job—with no limit on the total amount you can claim in certain cases. For the Nonbusiness Energy Property Tax Credit, you will be able to claim 10% of the cost of your improvements, but there are limits in place. To make sure the investments you have made are eligible for these credits, make sure you review IRS documentation carefully.