Commonly Overlooked Tax Credits You Might Be Missing - Legacy Life Planning Lance

Tax credits are one of the most effective ways to reduce your tax liability. Unlike deductions, which lower your taxable income, tax credits reduce the amount of tax you owe dollar-for-dollar. While many people are familiar with standard credits like the Earned Income Tax Credit or the Child Tax Credit, there are several lesser-known credits that individuals and businesses often overlook. Here’s a look at some of these hidden gems that can help you save more on your taxes.

1. Saver’s Credit (Retirement Savings Contributions Credit)

Planning for retirement is crucial, and the Saver’s Credit is an excellent incentive for low-to-moderate income taxpayers to contribute to their retirement accounts. This credit rewards those who contribute to an IRA, 401(k), or similar retirement plans by offering a tax credit of up to 50% of the first $2,000 contributed.

Who’s Eligible?

Taxpayers 18 or older, not full-time students, and not claimed as dependents on another person’s tax return.

Income limits apply and are adjusted annually. For 2023, for instance, the income limit for married couples filing jointly is $73,000, and for single filers, it is $36,500.

This credit can be a great way to reduce your tax burden while simultaneously boosting your retirement savings.

2. Lifetime Learning Credit

If you’re pursuing additional education, either for personal growth or career development, the Lifetime Learning Credit (LLC) can help reduce the financial burden of tuition and related expenses. This credit offers up to $2,000 per year for qualified education expenses, including tuition, fees, and even books.

Who’s Eligible?

Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit is available for individuals enrolled in eligible educational institutions, regardless of whether they’re pursuing a degree.

The income limit for this credit is $80,000 for single filers and $160,000 for married couples filing jointly.

The best part about this credit is that it can be used for unlimited years, unlike other education credits with limited eligibility periods.

3. Work Opportunity Tax Credit (WOTC)

Businesses that are looking to hire can take advantage of the Work Opportunity Tax Credit (WOTC). This credit is designed to encourage employers to hire individuals from specific target groups, such as veterans, ex-felons, and individuals on long-term unemployment, providing an incentive to diversify the workforce.

How Does It Work?

Employers can receive a credit of up to $9,600 per new hire, depending on the target group of the employee and how many hours they work.

Businesses of any size are eligible, and the credit applies to both part-time and full-time hires.

By making strategic hiring decisions, businesses can save on taxes while supporting employment in underserved populations.

4. Energy-Efficient Home Improvement Credit