Preparing and filing your annual federal tax returns can be a challenge that many would rather avoid, but the ones who consider it one worth taking will usually admit that the credits that we are allowed to take can force us to do a lot of research, just to make certain that we get it right. Tax credits are never simple, especially if you have a lot going on in your life, so the first thing you will need to do is to identify some of the basic guidelines and whether any of them will apply to you. The tax laws have been known to change on a regular basis and what might have worked for your tax return last year may no longer be valid for the next tax season.
What is a tax Credit
With all the different opportunities to reduce our tax liability, one of the most beneficial is going to be a tax credit, especially one like the earned income credit. The benefit of this credit varies, depending on who you happen to be and of course, the amount of money you earned. The main criteria for this credit is to have a child that is dependent on you for financial support. This is a refundable credit that can reduce your tax liability and make your finances look a lot better. It can also change the amount of money you receive in your paycheck, if you choose to advise your employer about your eligibility for this credit.
What are the guidelines
In order to qualify for a particular tax credit, you must fall within a certain criteria during the year that you are filing your tax returns for. Keep in mind once again, circumstances may change from one year to another so the credits you take this year may not necessarily apply next year. If you are in the mood to do some reading, the IRS has a publication (pub17 – your federal income tax) which contains over 200 pages of information that can break down your eligibility for tax credits. Credits take on many forms and the tax laws are very precise
as to who can qualify, whether you contact a tax specialist or request the IRS publication, the end result could be worth it.
The process of making a claim
So how exactly should you go about getting back some of this credit windfall and is it something that you will need help for? Claiming your credits usually involve going to the second page of your federal tax returns, otherwise known as form 1040 or 1040A You may end up having to fill out another form to complete your returns and they go as follows,
a)-Form 2441 is used for child care credit
b)-1116 has to be used for credits that relate to foreign taxes
c)-Education, hope and lifetime learning credits require one of the forms in the 8000 series
What are my options?
In order to claim any of the above mentioned credits the taxpayer must submit their request on their forms, however if they fail to do so, they may receive correspondence from the Internal Revenue Service to resubmit their returns with the earned income credit request. Most professionals in the business of preparing taxes are fully aware of this credit and will include it in the filing, but considering that (depending on your income) the amount in your favor could be over 5,000.00 you should be prepared to ask for confirmation. Never assume that your tax Preparer has completed every aspect of your return, it is easier than you might think to miss something during tax time.
Where do I fit in?
In order to qualify for earned income credit or any other credit from your tax filing, you must have actually earned an income. Financial support for public assistance or social security benefits are not considered as income that was earned. If you are not certain about your eligibility to claim a particular credit, the IRS has calculators in place to provide you with the answer you are looking for. There are several other credits like adoption, retirement savers and hybrid, so if you know a particular credit applies to you, don’t lose the opportunity to claim it.