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What does it mean to have a Tax Credit?

Many people ask me, "I just put a roof on my house, can I deduct this on my taxes?". First I have to go through my checklist and first ask if it has any thing to do with solar, or energy effiicient updating. There have been so many misleadings about getting a "tax credit" from other businesses trying to increase their sales by telling there customers yes you can deduct this Solar roof as a tax write off. So many when they think a tax credit, in there minds they are thinking "tax refund".


Unfortunately, this concept gets misconstrued at all times, and at tax time, they are asking their tax preparer why isn't there refund bigger since they were told they would get a credit for buying this absorbant investment on their taxes? ?


Not only are these companies misleading their customers, they are making the tax profession look bad as well. I always tell my clients, before making a huge decision if they are told it will help them on their taxes, please please call me first or there trusted tax advisor, and if need be I will refer them to the IRS website for help on the subject so that they know and feel comfortable with there decision.


Taxpayers are at the mercy of there tax preparer actually, and sometimes they are still given the wrong information, be it the tax professional didn't do their due diligence for that client and then the client is wondering why they are owing so much taxes at the end of year.


There are two types of Tax Credits:

1. Non-refundable tax credit, and 2. Refundable tax credits.

  1. A Non-refundable tax credit is where this only lowers your tax on your taxable income, therefore lowering your tax liabilty.

  2. A Refundable Tax credit is where after the Non-refundable tax credits are applied if any, then the refundable tax credit is added to your federal withholdings or estimated taxes paid in the year are applied. Which in some circumstances provides the taxpayer a refund if they still owe no tax.

I have provided a link straight from the horses mouth, the IRS. This will give you details on refundable tax credits, and if you have any questions please contact me or your current tax professional. https://www.irs.gov/credits-deductions/individuals/refundable-tax-credits#:~:text=A%20refundable%20tax%20credit%20is,only%20until%20it%20reaches%20%240.


Here is a list of some Tax Credits that are non-refundable:

  1. Adoption Credit

  2. Credit for other dependents

  3. Lifetime Learning Credit

  4. Residential Energy property credit

  5. Energy tax credits

  6. Saver's Credit

  7. Child Care Credit

  8. Foreign tax credit

  9. Electric Vehicle Tax Credits.


I really hope this helps my customers as well as any of you that have others prepare your taxes, or if you prepare them yourself. Don't be afraid to ask a tax professional year round about a tax plan, so that you are not worrying or stressing if you are going to owe an extra bill at the end of the year, on top of you bills you are already trying to cover. The economy is hard enough to get round and I am trying to help my Tax peeps and shed light to the dark tax vortex everyone is trying not to be pulled into at tax time.


Blessings!

580-387-5050

Beverly Hageman

CEO Integrity Accounting and Tax LLC

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