Many people in their twenties do not have enough expenses to justify itemizing, and opt to take the standard deduction. This can be frustrating when you pay your taxes, and realize that you cannot reduce your tax bill through charitable donation deductions
or other means.. However, there are several different tax credits available to all taxpayers. The credits are available even if you do not qualify to itemize, and you should take advantage of them, because they can reduce the amount you pay. You can also qualify for a refund of some of the credits if you have credits left after paying the taxes you owe. If you are a college student or recent grad check out these tax tips
before you file. If you end up getting a refund back, you should create a spending plan for your refund
to make sure you use the money wisely.
1. Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is available to people who work during the year, but who do not make enough money to survive on. This is available to single and married couples, but does not really begin to affect you until you have children. It is worth looking up your income on the table to see if you qualify for the credit. You must follow the rules exactly or you can be disqualified from the credit for up to ten years afterwards, and you will have to repay the money that you owe. A good tax professional
will know if you qualify, and any tax software you use will ask you these questions as well. If you qualify for free file
, you may qualify for this credit. If you do not, then you definitely will not.
Although this is a tax deduction, I am mentioning it because it is an above the line deduction. This means you do not need to itemize to take the deduction. Your student loan company will send you a 1098 form that will list the amount you can deduct from your taxes. You will need to file form 1040 or 1040A to claim the deduction. If you are using tax preparation software, it will take you through the process to qualify for the credit. A tax professional should ask you the questions as well, but you will need to take the form with you when you visit him.
3. American Education/Lifelong Learning/Hope Tax CreditThe education credits are a good option if you paid for your tuition this year. In order to qualify you need to have paid for your tuition yourself. If your parents paid it for you, you cannot claim it. If you need to take certification classes or are taking night classes to work towards a master’s degree, you may also qualify for one of these credits. The American Education credit is extended until 2012, and is only good for undergraduate tuition. There is a $5,000 annual limit on this credit and it can only be claimed for four years. The Lifelong Learning Credit is good for a master’s degree as well, and you can only claim a percentage of your tuition with it. If you have multiple people in your family going to school the Lifelong Learning Credit is combined for the entire family.
4. Child Tax Credit and Child Care Credit
The Child Tax Credit
is a $1,000 credit available for each child that you have. You can claim this credit for each of your children separately. You can also reclaim unused portions of this credit and have it refunded to you at the end of filing your taxes. Tax preparation software and your tax preparer should do this for you automatically. The Child Care Credit allows you to deduct a portion of the expenses you pay in childcare each year. This credit can also be claimed if you are paying for care a dependent adult.