Tax Credits

Tax Credits

Purpose of Tax Credits

A Tax Credit is a specific amount that is subtracted from the accumulated amount of tax paid by a tax payer to the State. The tax credits can be settled in terms of income tax, property tax and VAT. It can also be settled for the purpose of recognizing the taxes that are already settled in form of subsidies or are paid for the purpose of encouraging investment in economy. The tax credits are also refundable in US tax code system up to a degree that it surpasses the required tax. Tax credits can also be granted to businesses and individuals depending on the type of credit.

The US tax code endows tax credit to low income earners as well in order to provide them with adequate benefits to fulfill their necessary expenses. Earned income credit is a refundable credit that is endowed up to a specific portion of income of a low income earner. The tax credit is estimated based on number of children qualified as per law and is adjusted to inflation rate. As per stats of 2009, the maximum tax credit allotted was $56757. Tax credit is also availed by elder or a disabled person, which is not refundable and is recorded to be $1125. Tax credit is also endowed in form of retirement saving credit that is also not refundable, and it is estimated to be 50% of employee's contribution to IRA or other retirement plans. An individual may also get opportunity to save tax via availing tax credits in form of mortgage interest credit that is nonrefundable and is restricted to $2000.

The relevancy of tax credits can be estimated form the fact that a low income earner resident of USA having family and children can also avail the benefits of tax credit/ The child credit of up to $1000 per child can be granted if children are below 17 years of age at the end of tax year. It is a source of relief for those parents that a not able to afford and complete their needs of basic necessities easily. The US code has also benefited individual in form of subsidize education facility. In this regard, an individual can make most of the American Opportunity Tax Credit that covers 100% of first $2000 and 25% of second $4000 of tuition fees for two consecutive years. One can also take advantage of Lifetime Learning Credit that covers 20% of first $10,000 of accumulated learning expenses.

The US government also provides tax credits to businesses as well to promote investment in some particular businesses. These tax credits can also be carried forward to future as well with specific restrictions on limits. The tax credit is granted on purchase of some vehicles, production of non-petroleum fuel, investment in disaster relief campaigns and projects promote and encourage expenditure on research and development, etc. These credits promote investment and development in special businesses that strengthen the flow of economy as a whole and ...