Top 8 Tax Credits and Deductions You Should Care About in 2022

While the IRS may not appear as a lenient institution when it comes to collecting taxes, the Federal body does hand out hundreds of tax credits and deductions that allow you to reduce your taxable income or bill. Tax credits reduce your tax bill on a dollar-to-dollar basis. That is, if your tax bill stands at $500 but you are eligible for a $1,000 tax credit, the IRS pays you $500 as a tax refund. Tax deductions reduce your taxable income. The tax bill is then calculated on this reduced income and you pay a low amount as tax.

As obvious, both tax credits and deductions are excellent routes to reduce your tax payable. For the tax season 2022, make sure you claim the following credit and deductions, if eligible, and try to get a tax refund from the IRS.

1.Recovery Rebate Credit

This credit is unique to the year 2021. All those taxpayers who did not receive their third installment of the economic stimulus package back in March 2021 can claim the remaining amount as the Recovery Rebate Credit through their tax filing. Line 30 of Form 1040 deals with this tax credit. Visit your IRS account to verify the amount due and file for the recovery rebate accordingly.

2.Child Tax Credit

Again, for the tax year 2021 alone, you can claim up to $3,600 as Child Tax Credit for a dependable child aged below 6 years and $3,000 for a dependable child aged between 6 to 17 years. Previously, the CTC was capped at $2,000. You can claim the Child Tax Credit directly through Form 1040. Your adjusted gross income has to be below $150,000 for joint filers and $75,000 for single filers.

3.American Opportunity Tax Credit

If you are eligible for the AOTC, you can claim up to $2,500 in tax credit from the IRS. You can include educational expenses from your higher education (first four years only) that entails tuition and classroom supply costs. You can also include the expenses that you did not pay directly to the school. Claim AOTC if your gross annual income is below $90,000 by filling out Form 8863 and Schedule 3.

4.Credit for sick leave or family leave

The credit for sick leave or family leave is meant for self-employed taxpayers who can claim up to $200 per day in tax credit if they were unable to work due to COVID-19 or stayed back home to take care of a family member suffering from COVID-19. The leave dates must fall between April 1 to September 31, 2021. You need to use Form 7202 to claim these tax credits.

5.Charitable Contribution Deduction

Taxpayers who claim the standard deduction cannot further claim the itemized deductions. However, the charitable contribution deduction is an exception where you can claim a deduction of up to $300 on top of the standard deduction for the donations you have made in 2021. Line 12b of Form 1040 allows you to claim the same. Joint filers can claim up to $600 of charitable contribution deduction.

6.Student Loan Interest Deduction

Most of us pay student loans and the IRS allows a tax deduction of a maximum of $2,500 on the interest payable on the loan. You can also include credit card interests in this deduction provided you used it to pay the student loan. Your modified adjusted gross income must be below $70,000 to claim this deduction and you may include student loans that you are paying for yourself, your spouse, or a dependent.

7.Medical expense deduction

The IRS also allows you to deduct your medical expenses incurred in a tax year from your modified adjusted gross income. The net bill you paid throughout the year must exceed 7.5% of the adjusted gross income. However, keep in mind that this is an itemized deduction. You cannot claim medical expense deduction if you already went for the standard deduction.

8.401(k) contributions deduction

If you have been contributing to your 401(k) throughout the tax year 2021, you can deduct the same from your adjusted gross income. Till 2021, the limit was set at $19,500 for individual filers up to the age of 50 years. In 2021, that amount increased to $20,500. If you are 50 years or older, you can now deduct up to $27,000.

In 2020, the IRS handed out an average tax credit of over $2,800. This year, the average might be way higher given the additional benefits that have come with the American Rescue Plan. So, at the end of the tax season 2022, expect a sizeable tax refund. And this could be your opportunity to easily pay the down payment of a new used car in Spartanburg without denting your existing savings at all.

You just need $500 to get started at Uncle Joe’s Used Cars and Trucks; however, you can always pay more with our unparalleled and hard-to-beat trade-in policy. Choose from a wide range of used cars and used trucks for sale in Spartanburg and drive home with a comprehensive 2 years/36,000 miles warranty. At Uncle Joe’s, we make it possible for you to buy and finance a quality used car. No matter what your financial history says, we fit a credit plan into your current pay check.