We all want to pay the IRS as little as possible, and taking advantage of credits, deductions, and tax-advantaged savings accounts is a great way to do it. This year, you have even more opportunity to capitalize on certain tax breaks, including these four.
A tax credit is a dollar-for-dollar reduction of your tax liability. If you owe the IRS $2,000 in taxes, a $2,000 tax credit will knock that debt down to zero. Not all tax credits are refundable, but those that are will pay you money even if you don’t owe any tax. Such is the case with the Earned Income Tax Credit (EITC).
The EITC is a credit for lower-income households and fully refundable up to its maximum value, which changes from year to year. In 2020, the EITC was worth up to $6,660, but this year, its maximum value has increased to $6,728. To be clear, this means that if you claim the EITC and owe no tax, you could get a check for $6,728.