Tax credits are often preferred to tax deductions because you can deduct tax credits directly from your tax bills. In order to deduct tax credits, your adjusted gross income needs to meet certain tax credit qualifications. The most common tax credit is child tax credit. There are other tax credits such as earned income tax credit, energy tax credit, federal excise tax credit, hope tax credit, and many others which will be discussed in other sections.
Common tax credits
Below are some common tax credits you can deduct from your tax filing.
Child care tax credit and dependent care tax credit
Child care tax credit and dependent care tax credit cover some of what you paid for qualified child care of dependent care. This includes babysitting, nurseries, and elder care while you are at work. There are some rules to follow and requirements to meet in order to claim child care tax credit or dependent care tax credit.
To qualify for these tax credits, the child must be under 13 or unable to care for themselves. The child care tax credit or dependent care tax credit cannot exceed a set amount per child or dependent. To claim these tax credits, you must list the child care provider's tax i.d. or social security number. If not, you will not get the tax credits.
Child tax credits reduce your taxes owed to the IRS by $500 for each child you have who is under 17 who is a US citizen. The child's social security number is required to claim this child tax credit.
College tax credits
College tax credits are also popular. The Hope Scholarship Credit allows you to take a college tax credit equal to the first $1,000 you spent on tuition and other college expenses and 50 cents for the next $1,000 up to $1,500 each year for 2 years. There are set rules to follow to claim this tax credit also.