What are the best tax deductions and tax credits in 2022?

It’s not tax filing season yet, but Americans are already sorting through their paperwork to get everything done, and they seem to be missing a trick. There are several tax deductions and tax credits available for 2022, which can reduce your tax bill and save more money for the new year. Tax credits will save you more money dollar-for-dollar than tax deductions, because they are a direct reduction in your tax bill.

If the bill is $50,000 and you have a $10,000 tax credit, this reduces the total bill to $40,000 – it’s that simple.Tax deductions reduce your taxable income and therefore indirectly your final bill.

There are two ways to apply – the standard or itemized deduction – the latter usually takes longer but can lead to more money – Americans are advised to calculate using both methods before applying.

What are the best deductions or credits to find?

The Child Tax Credit means families can get up to $3,600 for children under the age of six and up to $3,000 for children ages 6-17, which is a big increase in 2020.

Families earning less than $150,000 (or 112,500 for single parents) are eligible for the full amount. The American Opportunity Tax Credit provides 25% on the first $2,000 spent on tuition, books, equipment, and school fees (though not transportation or living expenses) and 25% on the next $2,000, up to a total of 2,500 credits.

The Child and Dependent Care Tax Credit covers a portion of child daycare costs, or for adults who are unable to care for themselves. In 2021 it was 50 percent of $8,000 for the first dependent, then half of $16,000 for two or more.

Designed to provide relief to low- and middle-income earners, the Earned Income Credit is available to those who earn less than $57,000.

It could net between $1,502 and $6,728 in 2021. Finally, student loan interest is also deductible. If your modified adjusted gross income (MAGI) is less than $70,000, you can deduct a maximum of $2,500 in 2021.

Leave a Reply

Your email address will not be published. Required fields are marked *