Paying taxes seems to be the only financial certainty for Americans nowadays. But we can often lower our personal tax responsibility through credits and deductions. A tax credit lowers the amount the government requires you to pay, or it increases your refund amount dollar-for-dollar. A deduction decreases your taxable income before calculating the amount you owe.
You can use legal tax write offs to shrink the total you must pay to the government. And fortunately, the Internal Revenue Service (IRS) offers multiple credits and deductions that you may be eligible to claim.
Believe it or not, you likely already received a tax credit through federal programs like the Advance Child Tax Credit and Economic Impact Payments, also known as stimulus payments. Some areas sent state stimulus payments as additional relief aid, such as California, Delaware, and Georgia.
The government sent three federal stimulus payments to counter the negative financial effects of the COVID-19 pandemic:
- The first IRS stimulus payment was for a maximum of $1,200, and the IRS started sending checks and direct deposits in April 2020.
- The second payment was for up to $600 and went out starting in December 2020.
- The third stimulus payments were for up to $1,400, and delivery started in March 2021.
However, you may not have received your payments (or received less than the maximum) if you did not file your taxes or otherwise notify the IRS that you qualify. For instance, you may have become eligible for a stimulus payment if your income decreased to less than the limit.
You might be able to get a stimulus check tax return if you missed one by notifying the federal government. A Recovery Rebate Credit makes up for missed Economic Impact Payments.
You can claim a recovery tax credit when filing your taxes for the appropriate year. So, if you filed your 2021 taxes already, you may have missed the tax credit.
For example, you can only claim the third stimulus payment as a Recovery Rebate Credit on 2021 tax year forms and cannot file for it in past or future years. When filing taxes for stimulus check payments, you will need the amounts of any stimulus sums you received.
Like the Economic Impact Payments, the government sent Advance Child Tax Credit payments. You could receive up to 50 percent of the credit as monthly payments if your household qualified. The government then gave the remaining amount when you filed your tax return.
While the government issued these tax credits as early payments, you must claim other credits (and deductions) when filing your taxes. Several credits and deductions can reduce your tax liability and increase your tax refund payment. The next credits and deductions can help save individuals and families big bucks!