A tax credit directly reduces tax liabilities, while a deduction reduces an income that could be taxed on. In this article, read and find out the most well-known tax credits and deductions that can reduce tax liabilities this 2023!The tax credits and tax deductions are a few ways to reduce the tax liabilities. Both the tax credits and tax deductions may sound like the same, however, these two are very different processes. A tax credit can provide a dollar-for-dollar reduction of the tax liabilities. On the contrary, a tax deduction reduces the taxable income for the year. Nonetheless, both the tax credits and tax deductions can help save money, as reported by Lake.
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Child Tax Credit
According to an article in NerdWallet, the Child Tax Credit (CTC) can provide tax credits of up to $2,000 per eligible child. $1,500 of these tax credits are potentially refundable.
Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit is intended to cover a percentage of the expenses made for taking care of a child below 13. A spouse, parent, or other dependents unable to take care of themselves are also eligible. Generally, these tax credits amount to 35% of the $3,000 worth of expenses for one dependent. If there are two or more dependents, the tax credits can reach up to $6,000.
The Adoption Credit is intended to cover up to $14,890 worth of adoption costs per child. However, this tax credit starts to gradually decrease at specific income levels. Once the adjusted gross income reaches $263,410 or more, it will completely be discontinued.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) can provide tax credits worth $560 to $6,935. This depends on how many children there are, the marital status, and how much income is earned.
Charitable Donation Deductions
If the charitable donation deductions are itemized, the value of the charitable donation may be subtracted from the taxable income. The charitable donations may be in cash or property like clothes or a car. According to the Internal Revenue Service (IRS), up to 60% of the charitable donations can generally be deducted from the adjusted gross income.
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