While many deductions were cut or modified with the Tax Cuts and Jobs Act (TCJA) of 2017, most tax credits were retained. Tax credits are more powerful than tax deductions because they directly subtract from your tax bill (deductions only reduce taxable income). Refundable tax credits are even better, since refunds can be greater than your tax bill.
Explains Betterment Head of Tax Eric Bronnenkant, "Credits are, in general, more valuable than deductions, because they reduce your taxes dollar-for-dollar." Do you qualify for any of the following nine tax credits?
1. Earned Income Tax Credit (EITC) – One of the most popular and powerful tax credits available to low-income families, the EITC allows up to $6,557 in refundable credits (for married couples filing jointly) for those who have three or more qualifying children in tax year 2019.
2. Child Tax Credit (CTC) – In exchange for eliminating personal deductions, the TCJA doubled the child tax credit that's non-refundable to $2,000 per qualifying child under age 17. Modified adjusted gross income (MAGI) phaseouts were also increased to $200,000 for single filers and $400,000 for married filing jointly.
3. Credit for Other Dependents – The TCJA created a new $500 non-refundable credit for dependents who are not otherwise qualified for the CTC – including dependent children beyond the age of 17 and elderly parents/grandparents.
4. Additional Child Tax Credit (ACTC) – The ACTC is a refundable supplement to the CTC for those who don't owe enough taxes to claim the full CTC credit. It allows qualifying taxpayers to claim up to $1,400 in additional credits that extend beyond the taxes that they owe. You'll need Schedule 8812 to see if you qualify.
5. American Opportunity Credit (AOC) – This credit may be claimed against qualified education expenses up to a $2,500 annual limit per qualifying student – and the AOC can be partially refundable (up to 40%).
6. Lifetime Learning Credit (LLC) – If you're not qualified for the AOC, the Lifetime Learning Credit is a non-refundable credit allowing up to $2,000 in credits per return (not per qualifying student).
MAGI limits and phase-outs apply to both education credits. For details on qualifications and differences, see the IRS Form 8863 Instructions.
7. Retirement Savings Contribution Credit – This "saver's credit" allows you to claim credits for up to 50% of contributions to an IRA or employee-sponsored plan like a 401(k). This credit phases out at a MAGI of $32,000 for single filers or $64,000 for married filing jointly.
8. Adoption Credit – You may claim a credit of up to $14,080 per eligible child in qualified adoption expenses incurred in 2019 – and if the adopted child is a special-needs child, you may be able to claim the credit even if you didn't pay qualifying adoption expenses in 2019.
9. Net Premium Tax Credit – This refundable credit applies to premiums for health insurance purchased through the health insurance marketplace. It's designed to help lower-income families afford insurance. Qualifying taxpayers must fill out Form 8962 to claim their credit.
Other credits may be found in Schedule 3 for 2019, which includes the combined entries from the 2018 Schedules 3 (non-refundable credits) and 5 (refundable credits). For more details, see the Schedule instructions toward the end of the new 2019 Form 1040 instruction booklet.
10. Residential Energy Efficient Property Credit – You may be able to claim a credit of 30% of the costs of energy-saving improvements to more than one home you used as a residence in 2019. These improvements include qualified solar electric, small wind energy, solar water heating, geothermal heat pump, fuel cell additions, and direct labor costs. However, the credit amount for qualified fuel cell property is limited to $500 for every half a kilowatt of property capacity.
11. Nonbusiness Energy Property Credit – An additional credit may be taken for 10% of the amount incurred in 2019 for qualified energy efficiency improvements and any residential energy property costs paid or incurred in 2019. This credit is, however, limited to a total combined limit of $500 for all tax years after 2005 and a total combined limit of $200 for windows during that period. Furthermore, there is a credit limit of $50 for any advanced main air circulating fan; $300 for any one item of energy efficient building property; and $150 for any qualified propane, natural gas, oil furnace, or hot water boiler for 2019.
Take advantage of all tax credits that you can to reduce your tax bill – but don't forget deductions. The TCJA may have adjusted deductions to make the standard deduction a more tempting choice, but itemizing may still be the right choice for you.
Failing to pay your taxes or a penalty you owe could negatively impact your credit score. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.