Finding Emergency Money Can Be Simplified by Using Tax Credits
Minimizing tax liability
Finding emergency money isn’t easy, but with the vast amount of tax credits available the government is trying to make it a little simpler. Once you get your income tax liability down, you then can start looking at tax credits. There are a wide variety of them available, but it’s important to remember that they do not create a refund if they exceed your tax liability. Here are some of the most popular tax credits and a little about how to utilize them.
Child tax credit
In general, you can claim a tax credit of $1000 for every under-17 year old child in the household. To calculate your exact credit you need to complete a “Child Tax Credit Worksheet.” Even though this credit could exceed your tax liability, you still may be able to use a portion of it if your income for the year was more than $8,500 and you have three or more children. There may be some limitation on the credit if your income is more than $55,000. This is one of the most common tax credits used and though there is paperwork to fill out, it can help create more savings.
Child and dependent care credit
For anyone who had to hire an outside worker to help with their children or dependents, there could be an additional tax credit. The care you needed to outsource may be considered an expense, even if you only worked outside the house part-time. This credit is claimed on Form 2441 if you file a 1040 and on Form 1040A , Schedule 2. To calculate the amount of the credit, you’ll need to have the amount of the expense, number of dependents who needed provisions, and your income. The actual credit amount is then based on your adjusted gross income.
The adoption credit
Emergency money can also be found using the adoption tax credit. If you adopt a child under the age of 18, there is an adoption credit that can reach a maximum of $11,650. It also is applicable if you adopt a person physically or mentally disabled and incapable of self-care. This credit is used on Form 8839. If your employer provided an adoption expense, then you can exclude that money from your income.
Hybrid vehicle tax credit
If you purchased a hybrid vehicle, there is also a tax credit available. The amount of this credit is dependent on the car’s projected lifetime fuel savings, as dictated by the IRS. The maximum for the credit is $3,400. Only the car’s original purchaser of a new hybrid car can be claimed on this credit and if you leased the car, the leasing company claims the credit.
The retirement plan tax credit
For anyone who contributed to their 401k plan or an IRA there may be a second tax credit to take advantage of. The maximum for this credit is 50% of a contribution up to $2,000. The credit is a good way for people who are vigilant about contributing to their savings, to find even more savings. Those with higher incomes may also qualify for an additional 20% credit. This credit is on Form 8880.
Using the tax credits
Adding to emergency money funds can be easier if you utilize the tax credits available to you. Check with a tax preparer who is well-versed in optimizing tax credits to be sure that you are taking all credits available. The savings can be considerable in minimizing your tax liability.