We could all use a little extra financial good news at the end of the year. Enter tax credits! A tax credit is a dollar-for-dollar credit you can subtract from your income tax. They’re different from deductions which reduce how much of your income is taxable. Tax credits lower your bill by a dollar-for-dollar amount. That means more cash in your pocket.
Here are some surprising tax credits you may qualify for this year.
The American Opportunity Tax Credit
This tax credit is for people who are pursuing post-secondary education degrees. To be eligible, you must:
- Not have completed the first four years of your post-secondary education
- Be enrolled in at least one semester during the tax year
- Maintain at least a half-time status in your program
- Not have been convicted of a drug-related crime
You can apply this to things like books, supplies, and other equipment for your education. If you’re pursuing a graduate degree, talk to your accountant to see if you could save money through this valuable tax credit.
Child Tax Credit
Your kids may come in handy when it comes to filing your taxes! If you have children, this credit could reduce your tax bill.
The credit is worth $2,000 and is open to parents with a qualifying child younger than 17. If you’re using a tax software program, the credit should be applied automatically, but double-check to make sure you’re getting what you deserve!
Adoption Tax Credit
If you’re thinking of adopting, or have done so recently, you likely know it can be an expensive process. This tax credit may help. For the 2020 tax year, this credit can cover up to $14,300 in adoption costs. That is a big-time saving you shouldn’t leave on the table.
Residential Energy Tax Credit
Going green isn’t just good for the environment. It can actually lessen your tax burden, too.
You can get a tax credit for making your home more energy efficient using alternative energy. The IRS lists the following as eligible toward this credit: “solar electric property, solar water heaters, geothermal heat pumps, small wind turbines, and fuel cell property.”
If you’re thinking about adding solar panels or other clean energy systems to your home, you could save 26 percent of the cost if you install before 2021, or 22 percent if you install before 2022. After that, this tax credit expires so now is a great time to take advantage of this credit — while helping the planet!
Electric Vehicle Tax Credit
Going green isn’t just good for your house. If you’re considering buying an electric vehicle, you could also save big on taxes this year. Purchases of new electric and plug-in vehicles in or after 2010 could be eligible for up to $7,500 in tax savings! That’s an incredible deal for a brand new, environmentally-friendly vehicle.
Use this calculator to figure out how much you could save on your new vehicle purchase. Electric is the future — if you’re in the market for a new car, you might want to consider taking advantage of this credit.
Every Dollar Counts
If you’re not taking advantage of tax credits, you’re leaving your own money on the table. Before 2020 is over, look into these tax credits and more at IRS.gov to see if you could qualify for valuable savings. Then, when you’re ready to put those savings into an CD, IRA, or other account, visit your nearest TFNB location.
