What are tax credits Your adjustments deductions and exempti

What are tax credits? Your adjustments, deductions, and exemptions reduce your taxable income. Tax credits, on the other hand, are directly applied to the tax that you pay. You may take tax credits regardless of whether you itemize deductions. Many credits are limited, based on income levels, so the amount of a credit may be reduced for high-income taxpayers The following statement refers to refundable and nonrefundable tax credits. A tax credit that reduces your income tax liability to below zero with the excess being returned to you is refundable Page 2 of tax Form 1040 lists the available tax credits. The nonrefundable tax credits are listed in the Tax and Credits section of the form. Select the tax credits. Check all that apply Charitable contributions tax credit Foreign tax credit Medical and dental tax credit Capital losses tax credit X Child and dependent care credit The Payments section of Page 2 of tax Form 1040 lists refundable tax credits. Select these tax credits from the list. Check all that apply Student loan interest tax credit XCredit for federal tax on fuels IRA tax credit XEarned income tax credit X American opportunity tax Credt

Solution

1. refundable

it possible that refundable tax credit can reduce the tax liability to below zero. If the amount of a refundable tax credit is more than the amount of taxes due, the difference will be given back as a tax refund.

2. non refundable tax credit includes:

charitable contribution tax credit (non-refunable)

foreign tax credit (non refundable)

mental and dental tax credit (non refundable)

capital losses tax credit (non refundable)

child an dependent care tax credit (non refundable)

mental and dental tax credit and capital losses tax credit can be carried forward but are non-refundable

3. refundable tax credits include:

credit for federal tax on fuels

earned income tax credit

american opportunity tax credit (40%)