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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
How We Make Money.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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When it comes to taxes, credits are the preferred way to cut your bill.
While deductions, either itemized or standard, reduce your amount of taxable income, credits cut your actual tax bill, dollar-for-dollar. That’s because credits come into play AFTER your tax liability is figured. So if you owe Uncle Sam $500, a $250 tax credit will cut your bill in half.
Similarly, some credits are more valuable than others.
Refundable credits
Refundable credits may eliminate any tax you owe and provide you with a refund. So even if your tax bill is zero, you could get money back from the Internal Revenue Service thanks to a refundable credit. These credits include:
Earned income tax credit
Additional child tax credit
Credit for taxes withheld on wages and other amounts
Nonrefundable credits can take your tax down to nothing, but you can’t get money back from the government. Popular nonrefundable credits are:
Child tax credit
Child- and dependent-care credit
Credit for the elderly or disabled
Retirement savings contributions credit
Adoption expenses credit
Hope and Lifetime Learning education credits
These credits can’t be used to get a refund on your tax return. When your tax bill reaches zero, any leftover credit amount is wasted. With the adoption credit, however, you can carry forward unused amounts from year to year until the credit is absorbed or the carry-forward period expires, whichever is first.
The choice of your tax form also could affect your credit claims. Form 1040EZ filers can only claim the earned income credit. To get the benefit of the other credits, you must use Form 1040 or Form 1040A, and some of these credits require you to fill out additional forms.
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