The FinanceFlick: Using Tax Credits to Get Refunds for Up-To 3 Years Back

Photo by Andrew Dawes on Unsplash

Welcome to The FinanceFlick! This is Ariadne, your go-to finance geek. Today, we’re diving into what happens if your tax credits exceed your tax liability. If you’ve ever wondered how to make the most of those extra credits, this is for you. Let’s unpack this!

Understanding Tax Credits vs. Tax Liability

First off, let’s get clear on what we mean by tax credits and tax liability. Your tax liability is the amount of money you owe the government in the form of taxes for the year. A tax credit, on the other hand, is a dollar-for-dollar reduction of that liability. So, if you owe $150K in taxes but have $60K in tax credits, your liability drops to $90K. But what if your tax credits are more than your liability?

Now, let’s toss tax deductions into the mix. While tax credits cut your bill directly, deductions lower your taxable income. Think of it like a discount on your taxable income before you even calculate your taxes. Both are great, but they save you money in different ways.

The Power of Carrying Forward Tax Credits

If your tax credits exceed your tax liability, don’t worry — you won’t lose those valuable credits. You can carry them forward to future years — OR —…