Tax credits are lotteries of the tax world. Qualifying for one is equivalent to finding a $100 currency note in the pocket of an old pair of jeans. Any small or big change in your life can affect your taxes. You may get enrolled in a course or have a child, and someone might take parents as dependents. These are some examples of situations that might change your tax liability. 

On top of that, the government might change its rules about tax credits. Therefore, it is crucial to understand what they are and if you are eligible. After all, it would be a shame if you paid your taxes and found out later that you could have saved $200! A CPA in Richardson, TX, can explain the current tax laws to you and potentially save money that you otherwise would not. 

Understanding tax credits.

1. Energy tax credit.

You can reduce a lot of tax burdens by installing energy-efficient systems, like wind turbines and solar panels, in your homes. This encourages people to use clean energy and contributes towards environmental sustainability. 

The credit amount depends on two things: the type of improvement and the total cost. The more credit you have, the greater you can save on taxes you owe to the government. 

For example, if you spend $2000 on solar panels and the program offers a 25% credit for this type of improvement, the credit amount would be 25% of $2000, which is $500. Now, if you originally owed $2000 in taxes, you will subtract the credit and reduce the tax to only $1500.

1. Child tax credit.

The Child Tax Credit is a federal tax benefit designed for families who have children under the age of 17 by the end of the tax year. Under the American rescue plan, this credit was temporarily expanded for one year in March 2021. 

Yet, for the present tax year, families can receive up to $2,000 per child under 17 through the child tax credit. The refundable tax credit is worth up to $1600. 

If someone wants to qualify for this tax credit, their modified adjusted gross income should be under $400,000 if they file jointly with their spouse and $2000 for all other filers.

1. Child and dependent care credit.

The cost of childcare and elder care in the United States is rising year by year. If you or your partner have paid someone to care for a qualifying child so that you can actively look for work, you might be able to get some money back on your taxes through the Child and Dependent Care Credit.

 The maximum limit for single filers is $3000; however, for a spouse filing jointly, it is $6000. However, if your adjusted gross income is over $438,000, you might not be able to claim a refund.

1. Electric car credit.

It is a tax break for people buying electric cars, including plug-in hybrids. You can get your money back in taxes for buying an electric vehicle. The amount of tax credit depends on the vehicle’s battery capacity. 

The more powerful the battery, the bigger the tax credit. The credit amount also depends on the manufacturer’s sales volume. The maximum credit can go up to several thousand dollars. 

1. Adoption credit.

Families that adopt a child might be eligible for the federal adoption tax credit. Since a family spends so much money on adoption, including legal fees and so on, the government can decrease the burden when filing taxes. 

The adoption tax credit for 2024 is worth up to $16,810. However, if you adopted a child in 2023, the credit is worth $15,950. Also, this credit is non-refundable. 

If you want to experience ease and peace of mind during tax season, hire a CPA today!