NEW YORK (CBS NEWS) – If you’ve ever had to write a check to Uncle Sam in April, you’ve likely become a fan of finding ways to cut your tax bill — and that may have you wondering whether you qualify for any tax credits.
Tax credits are the gold nuggets of the tax world. Qualifying for one feels better than finding $100 in your pants pocket. Here’s a brief look at how some of the most common ones work — maybe you’ll find some cash here, too.
First, be sure you know the difference between a tax deduction and a tax credit. A tax deduction is a dollar amount the IRS allows you to subtract from your adjusted gross income (AGI), making your taxable income lower. The lower your taxable income, the lower your tax bill.
That’s pretty great, but tax credits are even better. They’re dollar-for-dollar reductions in your actual tax bill. A few credits are even refundable, which means that if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for $750. (Most tax credits, however, aren’t refundable.)
Either way, as a simplified example, a $10,000 tax credit makes a much bigger dent in your tax bill than a $10,000 tax deduction does.
Some of the most popular tax credits fall into one of three big categories. These are just summaries; tax credits have lots of rules, so it’s a good idea to consult a tax professional. Your state may offer a variety of tax credits as well.