What’s the Difference Between Refundable and Non-Refundable Tax Credits?
Understanding how refundable and non-refundable tax credits work can help you take full advantage of the credits you qualify for and boost your potential tax savings.
A refundable tax credit is like a bonus from the IRS. How so? If you qualify for a refundable credit, your tax bill can be reduced to zero. If the credit is more than what you owe, you get the difference back as a refund. So, even if you don’t owe any taxes, you can still receive money back from the government.
On the other hand, a non-refundable tax credit reduces your tax bill, but only up to the amount you owe. For example, if your tax bill is $800 and you qualify for a $1,000 non-refundable credit, the credit will reduce your bill to zero, but you won’t get the extra $200 back.
Both types of credits can provide significant savings, but refundable credits often have the added bonus of putting money back in your pocket.
Year-End Tax Credits: Don’t Miss These Money-Saving Opportunities
Ready or not, the end of the year will be here before you know it, making now the perfect time to check for any tax credits that could put extra savings in your pocket. Unlike deductions, which reduce your taxable income, tax credits directly reduce the taxes you owe, dollar for dollar. Yet, many people miss out on these valuable opportunities. With December 31st just around the corner, here are some tax credits worth considering!
1. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is for low to moderate income individuals and families. Eligibility depends on your income, filing status, and whether you have children, but even those without kids may qualify. Check the 2024 income limits to see if you’re eligible!
2. Child and Dependent Care Credit
If you’ve paid for childcare so you can work or job hunt, you might qualify for the Child and Dependent Care Credit. This credit can also cover care for an adult dependent, like an elderly parent. Make sure to keep track of your expenses and have everything squared away by year-end!
3. Saver’s Credit (Retirement Savings Contributions Credit)
Adding to your IRA or 401(k) not only helps grow your retirement savings but could also help you qualify for the Saver’s Credit! This credit is designed for low and moderate income earners who contribute to eligible retirement plans. Even better news is that contributions made by April 15, 2025, might still count for the 2024 tax year!
4. Energy-Efficient Home Improvements Credit
Make any energy-efficient upgrades to your home this year? You could qualify for tax credits on things like solar panels, energy-saving windows, or better insulation. Plus, you can save money while helping the planet!
5. Lifetime Learning Credit
If you’re planning to pursue higher education or covering tuition costs, the Lifetime Learning Credit can help ease your financial burden. This credit is different from the American Opportunity Credit because it applies to continuing education or vocational training. Be sure to check that your school and program qualify.
6. Premium Tax Credit (PTC)
You may be eligible for the Premium Tax Credit if you purchased health insurance through the Health Insurance Marketplace. This credit helps with the cost of your premiums and depends on your income and household size. Be sure to confirm your eligibility and ensure any advance payments you received are accurately reported.
7. Adoption Credit
For families who completed an adoption this year, the Adoption Credit can help cover costs associated with adoption fees, court expenses, and other related costs. The maximum credit amount does change each year, so make sure to check the current limits.
What Should I Prioritize Before Year-End?
Maximizing your tax savings and preparing for tax season should be top priorities in the final weeks of the year. Here’s what you need to focus on:
- Take a Look at Your Finances: Now’s the time to double-check all expenses and contributions that might qualify for credits.
- Get Your Documents Together: Keeping good records goes hand-in-hand with claiming credits. Gather receipts, payment confirmations, and any necessary forms.
- Talk to a Tax Pro: Tax laws change frequently and a professional can help you take full advantage of available tax credits.
Don’t let the hustle and bustle of the season prevent you from taking advantage of valuable tax savings. It’s important to understand and claim all the credits you’re eligible for, so you can lower your tax bill and better your financial situation.
Let’s make the most of your tax situation, contact us today!
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