Tax season is approaching, and many people are scrambling to find the hidden tax credits that they may not have known about. These tax credits cover education expenses, child care, adoption, and more. One of these hidden tax credits is the lifetime learning credit, which provides up to $2,000 per year for qualified education expenses like books or tuition. If you’re paying for your own schooling there’s also the American opportunity credit, which provides up to $2,500 per year if you’re working toward an associate or bachelor’s degree.
A lot of people don’t realize that tax credits are not just about getting a refund at the end of the year: They can actually save you money. Simply put, it’s a dollar-for-dollar reduction in your taxes owed. For example, if you owe $1,000 in taxes and qualify for a $500 tax credit, you will only owe $500 in taxes to the government.
What are Some Uncommon Tax Credits?
A few great examples of tax write-offs many people overlook are sales tax, moving expenses, mortgage points, and adoption fees. But one of the most underused tax write-offs is R&D. R&D (or research and development) refers to a group of activities that are aimed at improving the quality of an organization’s products, processes, services, and technologies. Therefore, the IRS allows businesses to claim R&D tax credit if they meet certain criteria.
Participating businesses can write off activities that are designed to encourage innovation and technological advancement and if they incur qualified research expenses during the year. The amount of the tax break depends on whether the business is small, medium, or large. For small businesses, these credits are worth up to $250,000 per year. For medium businesses, these credits are worth up to $500,000 per year.
What are Some Common Tax Credits for Business Owners?
Tax breaks are especially important for business owners. In fact, having nothing to write off can sometimes make or break a new or small business. While they cannot deduct advertising expenses or most other types of general and administrative costs, small business owners can take a deduction for money spent on office supplies. For example, a CPA firm would be able to write off 100 percent of the cost of what they spent on tax return folders from Mines Press for their customers.
Another obvious tax deduction for small business owners is car expenses for work use. The expense of a car is calculated based on how much it costs per mile in addition to any parking or toll fees. There are also deductions available for any vehicle, including motorcycles, that are under 6,000 pounds.
Small business owners can also deduct their health insurance premiums paid with pretax dollars, as well as what they pay out of pocket for medical expenses. Employees who are paid on commission can deduct what they have spent on their own individual office spaces if they do not have an employer who provides them with one.
What are Some Common Tax Credits for Individuals?
One of the most popular tax credits for individuals is the earned income tax credit (EITC). It has been around since 1975, and it’s been a very effective tool for the federal government to provide tax incentives for low-income families. To qualify, you need to meet several requirements, such as having a family income below a certain threshold amount. The EITC is just one of the powerful tools in America’s arsenal against poverty. It provides an annual cash infusion that helps offset income lost from paying taxes at the end of each year.
There are many tax breaks that people don’t know about or claim incorrectly. If you want to be sure that you’re getting every credit that is available to you, it’s important to consult with an accountant or do your own research.