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5 beneficial tax credits for 2018

Tax credits may seem similar to tax deductions as they both serve the same purpose of maximizing tax savings. However, they are quite different. While tax deductions lower the amount of your taxable income, tax credits are used to lower your tax bill. Based on your eligibility for different tax credits, you can get a dollar-for-dollar reduction in your tax bill. You may even qualify for refundable tax credits that can lower your tax liability below zero as well. This means you will get a refund even if the tax credit amount is larger than that of the tax. For example, if you are eligible for a refundable tax credit of $1250 and you are liable to pay a tax of $700, you will get a refund of $550.

It should be noted that most tax credits are non refundable. There are only rare instances when a person is eligible for a refundable tax credit. However, this does not mean non-refundable tax credits do not help you to save your hard-earned money from being taxed. Depending on the state you reside in and your income, you can be eligible for multiple tax credits. It is recommended that you consult a tax professional before filing your taxes to completely understand the rules and conditions of the various tax credits you would be eligible for. Here is a list of some of the popular tax credits for 2018 that you can apply for to save on your taxes.

  • Education credits
    Although the recent tax bill removed the tax deductions for tuition and fees, you can still save on your taxes using education tax credits for enrollment and tuition fees paid at qualified institutions. The tax credit for 2018 in this category is $2,000 if your modified adjusted gross income or MAGI is $65,000 or less in case you are a single filer. For married couples filing jointly, the income limit is $130,000 or less. You can also check your eligibility for the American Opportunity Tax Credit or AOTC that gives tax credits of up to $2,500 per year for each eligible student. This is applicable for courses of up to four years only if your MAGI is $90,000 and if you are a single filer or $180,000 if you are a married couple filing jointly.
  • Earned income tax credit
    This is a refundable tax credit. To claim Earned income tax credit or EITC, you need to meet the following criteria: you must be a resident alien or a citizen of the country; you must have an earned income; and you must have a social security number. You must also have an investment income lower than $3,450 for the year. You can claim this credit using Form 1040EZ. Note that you cannot claim this tax credit if you and your spouse file your taxes separately. The tax credits for 2018 in this category range from $520 with no qualifying children to $6,444 with three or more qualifying children. The income limit for single filers with no qualifying children is $8,510, and that for married couples filing jointly with no qualifying children is $21,000.
  • Child tax credit
    This is a non-refundable tax credit. You will be eligible for this tax credit if your child meets the required criteria in the following areas: age, relationship, citizenship, dependency, the period of residence in your house, and your household income. According to the recent Tax Cuts and Jobs Act, the tax credits for 2018 in this category is $2000. This tax credit is valid until 2025. In case, your tax liabilities are not enough for you to claim the full Child Tax Credit, you can check whether you are eligible for Additional Child Tax Credit. With this tax credit, you can make claims of $1,000-$1,400. You can use IRS Form 8812 to check your eligibility for this tax credit.
  • Non-child dependent credit
    This is a non-refundable tax credit for dependents who are not eligible for child tax credits. This is applicable for children who are 17 years or older as well as other dependents such as elderly parents. However, you are not allowed to claim this credit for yourself or your spouse if you file taxes separately. The tax credits for 2018 in this category is $500. The non-child dependent credit comes in effect from 2018, and you can check whether you are eligible when you file your taxes in 2019. It should be noted that this tax credit expires in 2025.
  • Retirement savings contribution credits
    This tax credit lets you get a tax reduction of maximum 50% of your IRA or 401(k) contributions. For single filers, the 50% credit is applicable on an adjusted gross income (AGI) of $18,500. For married couples filing jointly, the tax credits for 2018 is $37,000. These credits fall to 20% and 10% for lower AGI levels with no credits applicable at $31,000 for single filers and at $62,000 for those filing jointly. These retirement savings contribution credits are also known as saver’s credits.
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