Understanding tax credits and deductions can be confusing, but they can also be a great way to save money on your taxes. It’s important to understand the tax credits and deductions available to you so that you can take advantage of them and potentially lower your tax bill.
One common tax credit is the Earned Income Tax Credit (EITC). The EITC is a credit for low- and moderate-income earners, and the amount of the credit is based on your income and the number of dependents you have. However, this filing season, affected taxpayers will likely receive a significantly smaller refund compared with the previous tax year. Some tax credits return to 2019 levels. Changes include amounts for the CTC, EIT) and Child and Dependent Care Credit.
Those who got $3,600 per dependent in 2021 for the CTC will, if eligible, get $2,000 for the 2022 tax year.
For the EITC, eligible taxpayers with no children who received roughly $1,500 in 2021 will now get $500 in 2022.
The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021.
Another tax credit that may be available is the Child and Dependent Care Credit. This credit is available to taxpayers who pay for someone to care for a qualifying child or dependent while they work or look for work. The credit is based on the amount of money you spend on childcare, up to a certain limit.
In addition to credits, there are also deductions that can reduce your taxable income. One such deduction is the charitable donations deduction, which allows you to deduct charitable contributions you make to eligible organizations. During COVID, taxpayers could take up to a $600 charitable donation tax deduction on their tax returns. However, in 2022, those who take a standard deduction may not take an above-the-line deduction for charitable donations.
Other common deductions available include the mortgage interest deduction, the property tax deduction, and the medical and dental expenses deduction. These deductions can also help lower your taxable income and reduce your tax bill.
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