If you want to keep more of your money in your pocket instead of sending it to Uncle Sam, you need to maximize your tax credits. Unlike tax deductions, which reduce the amount of income that’s considered taxable, tax credits offer a dollar-for-dollar reduction in what you owe. In other words, if you get a $100 tax credit, you’ll owe $100 less in taxes. Some tax credits are even refundable, which means that if you’re owed money when you file your return, you can receive the credit as a tax refund.
We’ll break down five of the biggest tax credits Americans can claim. All numbers listed below are for 2023 numbers and apply to tax returns due on April 15, 2024.
1. Adoption credit
How much it’s worth: Up to $15,950
The adoption tax credit is meant to offset the high costs of adopting a child. Eligible expenses include adoption fees, legal expenses, and costs of travel related to the adoption. You can generally claim the credit if you adopted a child under age 18 or anyone who’s physically or mentally unable to care for themselves, regardless of age. One exception: You can’t claim the credit if you’re adopting your stepchildren.
The credit phases out if your modified adjusted gross income (MAGI) was between $239,230 and $279,230 in 2023.
Though it’s nonrefundable, you can carry forward the excess amount for up to five years. In other words, if you only owe $5,000 at tax time in 2023, you could carry forward the remaining $10,950 of the $15,950 credit and use it to offset taxes in a subsequent year.
2. EV tax credit
How much it’s worth: Up to $7,500
If you purchased a new electric vehicle (EV) in 2023, you may qualify for a tax credit of up to $7,500. If you qualify for this credit, it shouldn’t come as a shock to you. Dealers are supposed to give customers a report showing that their vehicle qualifies for the credit.
You can claim the credit if your modified adjusted gross income is less than $150,000 (single filers), $225,000 (heads of household), or $300,000 (married couples filing jointly).
There’s also a credit of up to $4,000 for customers who purchased a used EV, but the income thresholds are lower: $75,000 (single filers), $112,500 (heads of household), or $150,000 (married couples filing jointly).
If you’re considering purchasing an EV this year, read up on the EV tax credit rules for 2024. One big change for 2024: Dealers can now apply the credit directly to your purchase price and get reimbursed by the IRS.
3. Earned Income Tax Credit (EITC)
How much it’s worth: Up to $7,430
The Earned Income Tax Credit (EITC) is a refundable credit that provides tax relief to families with low to moderate incomes. To qualify, you need to have earned income, i.e., money from working, during the tax year.
Income limits are based on family size. A single filer with no dependents won’t qualify if their income was above $17,640 in 2023, while a married couple filing jointly with three dependents qualifies with up to $63,398 of income.
The maximum amount of the credit ranges from $600 for taxpayers with no qualifying children to $7,430 for families with three or more qualifying children.
4. Solar tax credit
How much it’s worth: Up to 30% of qualifying home improvement costs
If you made energy-saving improvements to your home, you may qualify for a tax credit of up to 30% of the costs. The Residential Clean Energy Credit, aka the solar tax credit, applies to home clean energy projects through 2034, though in 2033 and 2034, the value of the credit will be phased down.
Qualifying expenses include the costs of installing solar panels, solar water heaters, wind turbines, and geothermal heat pumps. The credit is nonrefundable, but you can carry forward any unused amount and use it to lower your tax bill in future years.
5. Child Tax Credit
How much it’s worth: Up to $2,000 per qualifying child
Parents of children who were age 16 or younger at the end of 2023 may qualify for the Child Tax Credit. To claim the credit, your child will generally need to be your tax dependent. The credit is available to single filers with incomes of less than $200,000 and married couples filing jointly earning less than $400,000.
The credit is worth up to $2,000 per qualifying child. Of that, $1,600 is a refundable tax credit known as the Additional Child Tax Credit.
How to maximize tax credits
Fortunately, tax-filing software makes it pretty easy for most people to figure out what tax credits they’re eligible for. But if you incurred major expenses that may help you qualify for a credit — like you adopted a child or completed a major home project — it may be worth consulting with a tax professional, since the rules can be complex.
Filing taxes is never fun. But tax credits can ease your burden at tax time and could even help you score a refund.
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