If you have children, one or more of these tax credits and deductions might be able to assist your family in reducing the amount of your tax liability for 2020. Consider the following examples;
1. Child Tax Credit
The Child Tax Credit can generally be claimed for each qualified child under the age of 17. The maximum credit per child is $2,000.00. The Additional Child Tax Credit may be available to taxpayers who do not receive the full amount of the credit (see below). The refundable part of the credit is $1,400, so taxpayers can receive it even though they don’t owe any taxes. For dependents who do not qualify for the Child Tax Credit, a $500 nonrefundable credit is available (e.g., dependents age 17 and older).
2. Additional Child Tax Credit
This refundable tax credit is available to those individual taxpayers whose Child Tax Credit exceeds their tax liability. Even if you don’t owe any taxes, the credit is worth $1,400 and can result in a refund.
Due to the pandemic, taxpayers will be able to figure this credit using their 2019 earned income if it is higher than their 2020 earned income.
3. Child and Dependent Care Credit
You may be eligible for a credit of up to $1,050, or 35 percent of $3,000 in eligible expenses if you pay someone to look after your dependent while you work or look for work. You can receive up to 35 percent of $6,000 (or $2,100) in eligible expenditures if you have two or more qualifying dependents. Higher-income taxpayers get a lower credit percentage, but it never goes below 20%, regardless of their adjusted gross income. This is a non-refundable tax credit.
4. Earned Income Tax Credit
This allowance, worth up to $6,660 in 2020, is available to taxpayers who were employed but received less than $56,844 in 2020. Taxpayers with or without children may be eligible.
Due to the pandemic, taxpayers will calculate their EITC using their 2019 earned income if it was higher than their 2020 earned income.
5. Education Tax Credits
Higher education expenses can be offset with education credits. Available credits are the American Opportunity Tax Credit and the Lifetime Learning Credit. These credits could help you pay less tax. If the credit reduces a taxpayer’s tax liability to less than zero, he or she may be eligible for a refund. And if a taxpayer owes no taxes, they can be eligible. Use Form 8863, Education Credits to claim the credits.
6. Student Loan Interest
Taxpayers who have taken out an eligible student loan will be able to subtract the interest they have charged. Even if they do not itemize deductions, they can claim this benefit.
7. Hiring Kids
When you hire your child, you can claim a business tax deduction (for employee wage expense) for the money you might have given to the child anyways. The deduction reduces your federal income tax bill, your self-employment tax bill (if applicable), and your state income tax bill (if applicable).
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Contact us if you have questions regarding tax credits and deductions that could be beneficial to your tax situation.