Line Your Pockets With Credits and Itemized Deductions Through VITA

Everyone wants their dollars to stretch as far as possible. Credits and deductions from the federal government make this goal possible. While credits and deductions have differences, they both save taxpayers money. Credits are applied directly to the taxes you owe the IRS while deductions impact taxable income. These common credits and itemized deductions save taxpayers the most money.

At Kaimore, we offer free tax services for low-income individuals. We also offer onsite tax preparation for unhoused individuals. We offer pop-up tax events at shelters and on the streets. We can be found at food distributions also. Look over your shoulder because you might find a Kaimore team member waiting to fill out your tax forms! We’re your advocate who will work with you to complete your tax preparation.

You can be confident that your taxes will be completed by a government certified volunteer. These representatives must complete Volunteer Income Tax Assistance (VITA) training. Volunteers must pass a Standards of Conduct exam as well. This exam is rigorous and volunteers must have in-depth knowledge of taxation concepts to be successful. Volunteers must be certified year by year. 

VITA provides free tax returns and electronic filing for taxpayers who generally earn $60,000 or less. This service is also offered for people with disabilities and taxpayers with limited English proficiency. Please email info@kaimore.org for more information. These tax services are free for qualifying taxpayers who need assistance filing their federal and state returns. Here are tax service essentials.

A credit gives you a dollar-for-dollar reduction in the amount of tax you owe. A tax deduction, also called a tax write-off, allows you to deduct money from your taxable income.  One key consideration with deductions is that they won’t help you much unless you itemize those deductions. This makes sense for people with a considerable amount of deductible expenses.

Credits and deductions can be tricky concepts to fully understand. An example will help with this clarification. Generally speaking, tax credits are more useful than deductions because of the dollar-for-dollar reduction. Consider a situation where your tax liability is $3,000. Both the credit and the deduction are valued at $1,000.

Regarding the tax credit, your tax bill becomes $2,000. The credit lowers your taxable income by $1,000. On the other hand, deductions are calculated by focusing on income tax brackets and their relationships to the value of the deduction. If you're in the 12% tax bracket, a $1,000 deduction reduces your taxable income by $120.

One helpful credit is the Earned Income Tax Credit (EITC). The EITC helps people keep money in their pocket. For the existing tax year, you can receive up to $7,430 if you have more three or more qualifying children.  Here are the guidelines for the EITC:  you have earned below $63,398 in wages; you must have investment income below $11,000 in the tax year 2023; you must have a valid Social Security number; you must be a citizen or a resident alien all year.

Here’s another benefit that provides help for cash-strapped communities - this is the Child Tax Credit (CTC). You must have dependents to qualify. This includes a child, parent, sibling, or stepchild. Spouses are not eligible. This credit is worth $2,000 per child under the age of 17-years-old. Your modified adjusted gross income must be $400,000 per couple or less. This number drops to $200,000 if only one person is filing.

There are Education Credits as well. Participants must be enrolled at a  college, university or trade school, and they must also be listed as your spouse or a dependent on your tax return. The maximum credit amount is $500 per dependent who meets certain conditions. Taxpayers qualify for this credit if the student is being claimed as a dependent on their tax return.

Another popular credit is the American Opportunity Tax Credit (AOC). This credit allows you to claim all of the first $2,500 you spent on tuition, books, equipment and school fees. This credit can’t be applied to living expenses or transportation. However, education expenses pay qualifying students $2,500 for each year of the first four years of higher education.

The Child and Dependent Care Credit (CDCC) helps taxpayers cover a percentage of day care and similar costs for a child under 13-years-old. This credit can also be applied for a spouse or parent unable to care for themselves or another dependent. This allows taxpayers to claim up to 35% of $3,000 in expenses for one dependent or $6,000 for two or more dependents.

Other measures that keep money in the pockets of taxpayers are deductions. Tax deductions are subtracted from your taxable income – this lowers the amount of taxes you owe. To determine how much of your income is taxable, subtract the amount of the tax deduction from your total income.

One popular deduction is the Charitable Donation Deduction (CDD). If you itemize your deductions, you could qualify to write-off the value of your charitable gift. A charitable donation is money or goods donated to a tax-exempt organization. To claim an itemized deduction, you must donate to a charity recognized by the IRS.

Basically, taxpayers can deduct up to 60% of their adjusted gross income via charitable donations. You could be limited to 20%, 30%, or 50% depending upon the type of contribution. What are the intricacies for a qualifying organization? The entity must be a tax-exempt organization. Ask the charity how much of your contribution will be tax-deductible. As a side note, gifts to family or friends are not considered tax-deductible. If these transactions exceed a certain amount, the taxpayer could be subject to the gift tax.

Another extremely beneficial deduction is the Medical Expense Deduction (MED). For 2023 tax returns filed in 2024, taxpayers can deduct qualified, unreimbursed medical expenses that are more than 7.5% of their adjusted gross income. For example, if you had $10,000 in medical expenses, you could potentially write off $7,000 worth of those expenses.

What qualifies for a medical expenses? The list is long. Here are some of the more common payments: doctors, dentists, surgeons, chiropractors, psychiatrists, and psychologists; hospital and nursing home care; acupuncture; addiction programs including quitting smoking; insulin and prescription drugs. Here are some expenses that don’t qualify for itemized deductions: funeral expenses; over-the-counter medicines; toothpaste, toiletries and other expenses; nicotine gum and patches that don’t require a prescription.

When should a taxpayer opt to use an itemized deduction instead of the standard deduction? As a benchmark, the standard deduction for tax year 2023 ranges from $13,850 to $27,700 depending upon your filing status. If your standard deduction ends up being less than your itemized deductions, you will want to itemize deductions to save money. In comparison, if your standard deduction is more than your itemized deductions, applying the standard deduction will save you money.