Tax credits are a great way to reduce your tax liability. There are two main types of tax credits – refundable and nonrefundable. A refundable credit will reduce your tax liability dollar for dollar and then once your tax liability is $0 any remaining credit will then be refunded back to the taxpayer. A non-refundable credit will reduce your tax liability down to $0 and then the remaining credit will be carried over to a future year. Although refundable tax credits still exist their numbers are dwindling due to changes in the tax code. Converting refundable credits into non refundable credits is a common way for politicians to increase tax revenue without raising the income tax rates.
Examples of tax credits are the solar energy credit, hybrid car tax credit, child care credits, education tax credits and the adoption credit. If you have been involved in a special needs adoption in the past then it might not be too late to receive a large refundable credit whether the adoption was successful or not.
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