Tax preparers often encounter clients who are confused about the various tax credits available to them. Understanding these credits can significantly impact your tax liability and, in some cases, result in a refund. This article aims to demystify individual tax credits, explain the difference between refundable and non-refundable credits, and discuss credit carryovers. By the end, you should have a clearer understanding of how to leverage these credits to your advantage. What Are Tax Credits? Tax credits are amounts that reduce the tax you owe on a dollar-for-dollar basis. Unlike deductions, which lower your taxable income, tax credits directly reduce the amount of tax you owe. There are two main types of tax credits: refundable and non-refundable. Refundable vs. Non-Refundable Tax Credits Refundable Tax Credits: These credits can reduce your tax liability to zero and result in a refund if the credit amount exceeds your tax liability. In other words, if your tax liability is $400 and you have a refundable credit of $1,000, you will receive a $600 refund. This is where many individuals who are not required to file a tax return miss out on substantial refundable tax credits intended for those with low incomes. Non-Refundable Tax Credits: These credits can reduce your tax liability to zero but cannot result in a refund. If your tax liability is $400 and you have a non-refundable credit of $1,000, your tax liability will be reduced to zero, but you will not receive a refund for the remaining $600. Credit Carryovers - Some non-refundable credits come with carryover provisions, allowing you to apply any unused portion of the credit to future tax years. This can be particularly beneficial if you have a low tax liability in the current year but expect higher liabilities in future years. Common Individual Tax Credits - Let's delve into some of the most common individual tax credits, indicating whether they are refundable or non-refundable and if they include carryover provisions

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