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State and Federal Tax Credits for US Taxpayers

US taxpayers can avail specific tax incentives like tax credits which reduces the amount of the tax they owe to the government by the amount of credit they have accrued during the year, you do this through proper tax planning. Basically, it allows for a dollar-by-dollar reduction of your payable tax amount. For example, if a person has to pay 500 dollars income tax, but they have 500 dollars’ worth of tax credits, their net payable amount would be zero, so they wouldn’t have to pay any tax at all. However, the federal tax credit is of no value for citizens with NOLs (net operating loss), with allowable tax deductions greater than their total taxable income. Nevertheless, they can redeem the credits for an earlier year through a refund or a later year by reducing future taxes.

The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) are the most commonly claimed tax incentives in the United States. Typically, tax credits can be carried back by one year or forward up to ten years, if not fully used. Also, taxpayers can always switch from deduction to credit. Still, the federal tax credit system does have certain limitations to avoid the potential abuse of said credit by taxpayers.

Get an Evaluation by Calling Us at 1-877-78-TAXES [1-877-788-2937].

We are located in Whittier, Los Angeles, California and serve all 50 states.

Tax Credits vs. Deductions

Both tax credits and deductions lower the amount of tax you need to pay the government, but they are somewhat different in how they work. Tax credits are pretty straightforward, so the number of tax credits you have earned is simply subtracted from the total amount of tax you owe. However, most tax credits are not refundable, and hence, some low-income filers might not be able to fully benefit from this offer. Still, some tax credits are partially or fully refundable. For instance, the earned income tax credit (EITC) is fully refundable. The child tax credit (CTC) is also refundable as the Additional Child Tax Credit but only for taxpayers with an income exceeding 2,500 dollars. Therefore, tax credits directly reduce your tax and are not influenced by the current tax rates.

On the other hand, deductions reduce the amount of taxable income, so that you have to calculate the tax amount after deduction. However, this depends on the taxpayer’s marginal tax rate and increases with their income. Also, deductions cannot reduce taxes below zero, and thus, you will lose the value of any deductions beyond that limit. Hence, deductions are more valuable for individuals in higher tax brackets. Unfortunately, though, most businesses tend to focus solely on deductions while entirely ignoring the potential benefits of tax credits. Some companies are eligible to claim tax credits and deductions, but they miss out due to mere negligence.

How Can I Claim Tax Credits?

You can claim your tax credits or deductions when filing your tax returns. In fact, claiming certain credits can give you a refund even if you don’t owe any tax. Also, you can claim deductions to reduce your taxable income amount. As for businesses, you will need to fill out the credit form and Form 3800 for general business credits.

Tax Credits Available for Individuals

As an individual in the United States, you can avail certain tax credits to reduce the tax you owe to the government. Some of these are listed below:

Family & Dependent Credits

If you’re eligible for this category of tax credits, you can look into the following options:

  • Earned Income Tax Credit
  • Advance Child Tax Credit Payments
  • Recovery Rebate Credit
  • Child and Dependent Care Credit
  • Credit for the Elderly or Disabled
  • Recovery Rebate Credit
  • Adoption Credit
  • Child Tax Credit & Credit for Other Dependents
Homeowner Credits

As a homeowner, you might be eligible for homeowner credits, such as the following:

  • Low-Income Housing Credit
  • Residential Energy Efficient Property Credit
Income & Savings Credits

If you’re a senior citizen with a certain amount of savings, you might be able to benefit from these tax incentives:

  • Saver’s Credit
  • Earned Income Tax Credit
  • Excess Social Security
  • RRTA Tax Withheld
  • Recovery Rebate Credit
  • Credit for Tax on Undisturbed Capital Gain
  • Foreign Tax Credit
  • Nonrefundable Credit for Prior Year Minimum Tax
Education Credits

These scredits can help individuals afford higher education:

  • American Opportunity Credit
  • Lifetime Learning Credit
Healthcare Credits

These credits are refundable and aim to assist low-to-moderate income families in affording healthcare services:

  • Health Coverage Tax Credit
  • Premium Coverage Tax Credit
Get an Evaluation by Calling Us at 1-877-78-TAXES [1-877-788-2937].

We are located in Whittier, Los Angeles, California and serve all 50 states.

Tax Credits Available for Businesses

You can also avail certain tax credits as a business owner looking for tax planning. The point of these credits is to encourage economic growth by giving incentives in the form of business credits. So, if you’re a business owner or someone looking to start a business, we’ve rounded up all the tax credits worth checking out:

General Business Credits

All your business credits are combined as ‘general business credits’ to determine your credit allowance for the year. This allowance will depend on your tax amount and can be carried back by one year or forward up to 20 years. Unfortunately, most businesses neglect these tax credits because they either focus too much on deductions or think they are not eligible. However, it would pay to look into the criterion for these tax credits and avail as many as you possibly can. Because after all, these credits are only being offered to empower you and help your business grow.

The credits included in this category, plus the forms that you need to claim them, are as follows:

  • Research credit on Form 6765
  • Small employer pension plan start-up cost credit on Form 8881
  • Indian employment credit on Form 8845
  • Renewable electricity, refined coal, and Indian coal production credit on Form 8835
  • New markets tax credit on Form 8874
  • Investment credit (including the sum of all energy, rehabilitation, and reforestation credits) on Form 3468
  • Biodiesel and renewable diesel fuels credit on Form 8864
  • Employer social security credit & Medicare Taxes Paid on certain employee tips on Form 8846
  • Low-income housing credit on Form 8586
  • Alcohol and Cellulosic biofuels credit on Form 6478
  • Railroad track maintenance credit on Form 8900
  • New energy-efficient home credit on Form 8908
  • Distilled spirits credit on Form 8906
  • Mine rescue team training credit on Form 8923
  • Orphan drug credit on Form 8820
  • Low sulfur diesel fuel production credit on Form 8896
  • Employer-provided child care credit on Form 8882
  • Energy-efficient appliance credit on Form 8909
  • Employer Credit for paid family and medical leave on Form 8994
  • Disabled access credit for certain eligible small businesses on Form 8826
  • Work opportunity credit on Form 5884
  • A portion of the Alternative motor vehicle credit on Form 8910
  • Employer differential wage payments credit on Form 8932
  • Non-conventional source fuel production credit on Form 8907
  • Small Employer Health Insurance Premiums Credit on Form 8941
  • A portion of the New qualified plug-in electric drive motor vehicle credit (depending on the date of purchase) on Form 8834
  • A part of the Alternative fuel vehicle refueling property credit on Form 8911
  • Empowerment Zone Employment Credit on Form 8844
  • Carbon dioxide sequestration credit on Form 8933
  • Agricultural chemicals security credit on Form 8931
  • American Samoa Economic Development Credits on Form 5735
COVID-19 Tax Credits

The COVID pandemic has adversely affected many start-ups and businesses. In fact, many small businesses had to give their employees paid sick leaves because of the virus, while many others had to lay off certain employees. However, Congress passed the Employee Retention Credit and the Paycheck Protection Program to facilitate these small businesses and employees. Therefore, as we mentioned before, if business owners are not aware of all the incentives they can avail, they might miss out, which is why they need to stay up-to-date in this regard. So, consult your accountant to see which credits you qualify for and ensure you don't have to pay any extra tax.

Inbound Investment Incentives

There are also some tax incentives related to inbound investment at the federal level. According to the portfolio debt exception, if foreign corporations or non-residents invest in certain obligations, they can be exempted from tax payments, provided they meet certain requirements.

Qualified Private Activity Bonds

The income on some qualified private activity bonds is also exempt from tax and thus, allows businesses to issue bonds at lower interest rates.

Other Incentives & Credits

Apart from the ones mentioned in this text, there might be other tax incentives and credits that you qualify for. Hence, you always need to be on the lookout for any new tax credits or other benefits that you can avail.

Get an Evaluation by Calling Us at 1-877-78-TAXES [1-877-788-2937].

We are located in Whittier, Los Angeles, California and serve all 50 states.

Tax Credits Available for Individuals for Different States

Tax credits that you might be eligible for vary from state to state. Here is a complete breakdown of different state tax credits to individuals and families in NY, TX, FL and CA.

Tax Credits Available to Individuals in NY
  • Child and dependent care credit
  • College tuition credit
  • Earned income credit
  • Empire State child credit
  • Household credit
  • Noncustodial parent earned income credit
Tax Credits Available to Individuals in CA
  • California earned income tax credit and young child tax credit
  • Child adoption costs credit
  • Child and dependent care expenses credit
  • College access tax credit
  • Dependent parent credit
  • Joint custody head of household credit
  • Nonrefundable renter’s credit
  • Senior head of household credit
Tax Credits Available for Businesses for Different States

The tax credits that you can avail as a business owner also vary from state to state. Here is a rundown of some of the tax credits that are available to businesses for NY, TX, FL and CA.

Tax Credits Available to Businesses in NY
  • Alcoholic beverage production credit
  • Alternative fuels and electric vehicle recharging property credit
  • Automated external defibrillator credit
  • Biofuel production credit
  • Brownfield credits
  • Clean heating fuel credit
  • Conservation easement credit
  • Economic Transformation and Facility Redevelopment Program tax credit
  • Empire State apprenticeship tax credit
  • Empire State commercial production credit
  • Empire State film production credit
  • Empire State film post-production credit
  • Empire State Jobs Retention Program credit
  • Empire State musical and theatrical production credit
  • Empire Zone (EZ) Credits
  • EZ employment incentive credit
  • EZ investment credit
  • EZ employment incentive credit for the financial industry
  • EZ investment tax credit for the financial services industry
  • Employee Training Incentive Program (E-TIP) tax credit
  • Employer-provided childcare credit
  • Employment incentive credit
  • Employment incentive credit for the financial services industry
  • Employment of persons with disabilities credit
  • Excelsior Jobs Program tax credit
  • Farmers' school tax credit
  • Farm donations to food pantries credit
  • Farm workforce retention credit
  • General corporation tax credit
  • Hire a veteran credit
  • Historic barn rehabilitation credit
  • Investment tax credit
  • Investment tax credit for the financial services industry
  • Life sciences research and development tax credit
  • Long-term care insurance credit
  • Low-income housing credit
  • Manufacturer's real property tax credit
  • Minimum wage reimbursement credit
  • New York City unincorporated business tax credit
  • New York Youth Jobs Program tax credit
  • QETC credits
  • QETC capital tax credit
  • QETC employment credit
  • QEZE credits
  • QEZE credit for real property taxes
  • QEZE tax reduction credit
  • Recovery tax credit
  • Rehabilitation of historic properties credit
  • Restaurant return-to-work tax credit
  • Security officers training tax credit
  • Special additional mortgage recording tax credit
  • START-UP NY Program
  • START-UP NY tax elimination credit
  • START-UP NY telecommunication services excise tax credit
  • Taxicabs and livery service vehicles accessible to persons with disabilities tax credit
Tax Credits Available to Businesses in CA
  • California Competes Tax Credit
  • California Research Credit
  • Homeless Hiring Tax Credits
  • Main Street Small Business Tax Credit II
  • Motion picture and TV credit
  • New employment credit
  • Pass-through entity elective tax
The Bottomline

The United States provides many state and federal tax credits to both individuals as well as businesses through proper tax planning. Tax credits basically reduce the amount of tax you are required to pay to the government. These are usually not refundable. However, any excess credits can be carried back to the previous year or ahead by a few years. The point, of course, is to encourage financial stability and to meet specific economic objectives. Nevertheless, the government can only do so much. The rest is up to you to gather all the information you need to see which credits you qualify for and thus, avail them to make the most of your hard-earned money.

Get an Evaluation by Calling Us at 1-877-78-TAXES [1-877-788-2937].

We are located in Whittier, Los Angeles, California and serve all 50 states.

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