Credits are a more powerful tax-saving tool than deductions, and some of them, if you qualify, can save you thousands.
A tax credit is among the most satisfying benefits you can turn up when preparing your return.
“With a credit, you get a 100% benefit,” says Andrew King, vice president of tax policy and research at Goldman Sachs GS Ayco Personal Financial Management in Cohoes, New York. “It’s a full recoupment of taxes you’d otherwise have to pay.” For the 2021 tax year, 4 out of 5 filers claimed this tax credit, with an average benefit upward of $2,000. The total value those credits was approximately $64 billion, the IRS said.
2. Child tax credit If you’ve used the child tax credit, or CTC, in the past, it’s important to remember that this benefit for families with children has undergone some significant changes. Do you qualify? Families with children under 17 are generally eligible for the child tax credit as long as their kids have valid Social Security numbers. However, the amount you can claim depends on your income.
The partially refundable American opportunity credit is also more generous: Taxpayers can claim up to $2,500 per eligible student, including for expenses beyond tuition, such as course materials. With the nonrefundable lifetime learning credit, you can claim a total of $2,000 per tax return for tuition only, regardless of how many students would be eligible. You can’t claim both credits for one student.
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