It's tax time, and the older you get, the better it is to start preparing for your taxes far in advance. We may still have a few months until April 15, but the more work you do now, the bigger refund you're likely to get in return.
Today, we're going to look at tax credits. Whether you're a small business owner or a regular W2 employee, tax credits can save you money and reduce your tax burden. Remember that a tax deduction is different than a tax credit; deductions are qualifying items you have purchased that you can literally deduct from your taxes (with the appropriate receipts, of course!), and credits are preset amounts that you take off your taxes in exchange for completing certain qualifying life events.
Child Tax Credit
Take, for example, the Child Tax Credit. If you have a child, a step child, a foster child, or any of the other qualifying dependents according to the IRS, you receive a pre-set tax credit. That's money that's taken straight off of your tax burden; money you no longer have to pay and that may even factor into your refund.
Earned Income Tax Credit
Other tax credits include education tax credits, adoption tax credits, and the Earned Income Tax Credit for low-income households. Some tax benefits are called credits but act like deductions; the energy efficiency credit, for example, allows you to deduct a specific percentage of qualifying environmentally-friendly purchases such as solar heaters.
Your best bet, when it's time to figure out which tax credits to claim, is to talk to a tax adviser or professional. Yes, paying someone else to do your taxes is going to cost you money - but it's also going to save you money, in the long run. Tax professionals know about tax credits that many people have never heard of, and can help you get the best tax refund possible.
Small Business Tax Credits
If you run a small business, you have a whole different list of tax credits to consider. As the
ADP.com team notes, 50% of state and federal business incentives, including business tax credits, go unclaimed. That's money left on the table. Businesses can also get tax credits for making energy-efficient renovations, for example, and there are even credits available if you hired certain categories of employees in the 2013 calendar year.
Of course, you're not going to have time to figure out all of those tax credits on your own, not when you're simultaneously trying to run a business. Your best bet is, of course, to hire that tax professional. You also need to start planning right now - many tax advisers get booked up as April approaches.
Self-Employed/Freelancer Tax Credits
If you are self-employed or a freelancer, you've been paying taxes all year round by way of the quarterly
1040 estimated tax forms. (Technically, all employees pay taxes year-round, since taxes are taken out of our paychecks; however, freelancers pay taxes in quarterly lump sums since their income is variable and they don't have taxes taken out of their invoices.)
That means that, now that April 15 is coming, it's your chance to see if you've overpaid throughout the year, and your turn to get a bit of that sweet refund money. If you can prove that you are entitled to deductions or credits greater than the amount of estimated tax you've already paid, you too get a refund.
How can you know what freelance deductions and credits are available to you? Third time's the charm:
talk to a tax professional. Find a tax adviser that specializes in freelance taxes, and see what credits you qualify for this year.
One more tip: even if you aced your taxes last year, chances are the rules have changed. You may be eligible for new tax credits. Of course, you'll never know unless you set an appointment with a tax adviser and find out!
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