Low-Income Tax Deductions
While no one likes paying taxes, good news for low-income families lies in the fact that, in most cases, the lower 40 percent of taxpayers do not pay taxes -- and, in fact, when various credits and deductions are factored into the equation, the bottom 40 percent actually make a profit. This is possible by receiving more in tax credits than actually owing in taxes. Having trained tax preparers inspect and assist in tax preparation will likely result in getting the maximum benefits available to low-income families. Volunteer centers exist in locations throughout the country.
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EITC
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The Earned Income Tax Credit (EITC) applies to individuals earning under $48,362 in wages. The difference between tax credits and tax deductions lies in the way a taxpayer calculates his taxes. A tax credit directly lowers the tax amount due. For example, if a taxpayer has a tax bill of $800 and a tax credit of $1,000, he receives $200 in a tax refund. Tax deductions, on the other hand, reduce a person's taxes prior to determining the tax amount due. Since tax credits operate on a one-to-one (dollar-for-dollar) basis, most taxpayers prefer tax credits over tax deductions.
CTC
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Low-income families benefit from the Child Tax Credit (CTC). Many low-income families with children struggle to make ends meet, and the CTC allows more of a family's income to go toward the necessities and less toward paying taxes.
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Medical
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One low-income tax deduction to consider is for medical expenses. If a family spends more than 7.5 percent of its adjusted gross income on medical expenses, the expenses are tax deductible. As with all claims for tax deductions, individuals need to keep all receipts and paperwork in order to claim the deductions.
Child Care
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Child care falls under the category of a tax credit for low-income families to use. Restrictions on using the child care tax credit include using the child care in order for one or both parents to work. In other words, using the child care credit in order to spend time with friends without being disturbed by the children will not be covered under the child care tax credit provision.
Assistance
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The IRS Volunteer Income Tax Assistance (VITA) Program provides free tax assistance for lower-income families, as well as some moderate-income families. Lower-income families can locate VITA preparers in various locations. In addition to helping fill out the forms for the families, VITA preparers also electronically file the return.
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References
- Yahoo Finance; Nearly Half of US Households Escape Fed Income Tax; Stephen Ohlemacher, Associated Press Writer; April 2010
- "The PrattTribune"; 8 Things You Should Know About: Federal Income Tax; Carol Bronson; March 2011
- "The Detroit News"; Tax Credit Helps Low-Income Filers; Kathleen Pender; January 2011
- The Shriver Brief; Federal Tax Agreement Benefits Low-Income, Working Women; Wendy Pollack; February 2011
- Paying for Senior Care: Tax Deductions for Elderly Dependent's Medical Expenses
- IRS.gov: Free Tax Return Preparation for You by Volunteers; February 2011
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