A tax credit is nothing more than savings on your tax return and funds paid out by the government. These credits are usually subtracted from the final tax amount you owe. The most widely used type of credit available on your income tax return is the working credit for people who are on a low income and have to take care of a young person or a child. If you are a married person then you will have to make a joint claim for the credit.
Most people get confused with the difference between a credit and regular tax deductions. They are actually two different things. You should also know that the credit is very important and more beneficial than the tax deduction. Most often people do not understand this and pay a higher amount of tax then they need to every year from not taking advantage of credits. A deduction is used to lower the gross income and then you pay taxes on what is left. But the credit works in a totally different manner, as it is actually deducted from the actual tax.
In figuring out your credits you have to first know your gross earnings. Claim all deductions and find out how much you owe in tax by looking at the appropriate table. After finding out the amount you owe to the IRS you can make a claim for any tax credit you qualify for. How will you figure out the amount of the credit? Your income as well as your personal circumstances will determine the amount of the credit. Your income is usually calculated on what you earned before the end of the tax year.
You can also get some relief on taxes for the money spent on education. The benefits are available to part-time and full-time students, parents of dependent students and married students. You can either choose the Hope Tax Credit or the Lifetime Learning Credit. By applying for the Hope credit you may be able to reduce the tax by about $1,800 for a student from your out-of-pocket fees and tuition. It can be claimed for a period of two years. Expenses on books, room and board, medical fees, transportation and insurance are not covered.
For the Lifetime Learning Credit you will be able to claim a credit of about $2,000. There is no limit on the number of years for making the claim. This credit is allowed for more than one course and is not based on the student’s workload. The credit can be claimed for graduate level degree expenses too.
There are also tax credits available for investments in property. There are various other types of credits for businesses and individuals. You can choose the appropriate one and make your claim when you file your income tax return.
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Are you looking for information on the tax credits you may qualify for? Be sure to visit my tax credit online site for information on the low income tax credit.
Tags: dependent students, gross earnings, gross income, hope credit, hope tax credit, income tax return, lifetime learning credit, married person, personal circumstances, taxes, two different things