Maximizing State Tax Savings: How to save with credits on state returns

As we approach the final stretch of tax season, individuals still navigating their filings may find solace in discovering avenues to maximize their refunds, not just from the federal government but also from state tax provisions.

Understanding State Tax Credits

According to recent data from the Internal Revenue Service (IRS), the average tax refund stands at $3,182 as of March 1, marking a notable 5.1% increase compared to the previous year. However, historical trends caution against complacency, as refund amounts tend to dip by 13% between March and April, as reported by Barron’s.

Exploring Opportunities in State Tax Codes

While much attention is often directed towards federal tax strategies, it’s essential not to overlook the potential savings hidden within state tax codes.

Understanding that each state operates under unique tax regulations, it’s prudent for taxpayers to explore available credits that could significantly reduce their state tax liabilities.

State Tax Credits: A Closer Look

Let’s delve into some notable state tax credits that could help you reclaim some of your hard-earned money during this tax season:

California: The Golden State boasts various credits tailored to its residents. The California Earned Income Tax Credit presents an opportunity for eligible individuals to receive up to $3,529. Additionally, credits such as the Young Child Tax Credit and the Foster Youth Tax Credit offer potential rebates of $1,117. Moreover, residents affected by presidentially declared disasters may claim additional rebates, while those requiring copies of previous tax returns due to such disasters can avail themselves of the FTB 3516 form for free.

Colorado: In Colorado, eligible filers can benefit from an $800 refund per person through the state’s Taxpayer’s Bill of Rights (TABOR) mechanism. Recent legislative changes have extended this benefit to all qualified individuals, departing from its previous reliance on sales tax mechanisms. Low-income, disabled, or elderly residents may qualify for the rebate by submitting a 2023 Property Tax/Rent/Heat (PTC) Rebate Application instead of a traditional tax return.

Oregon: Oregon taxpayers stand to gain from the state’s “kicker” tax credit, established in 1979. This credit kicks in when the state’s General Fund revenues exceed 2% of projections. To qualify, individuals must file their 2022 Oregon return before filing their 2023 return and have an Oregon tax liability for the former year. Estimating the “kicker” credit involves multiplying the 2022 tax liability by 44.28%.

Washington: Washington State offers a “Working Families Tax Credit,” mirroring the federal Earned Income Tax Credit. Eligibility extends to filers who qualify for the federal credit or those who filed a federal income tax return for the prior year using a valid individual taxpayer identification number. The credit, ranging from a minimum of $50 to a maximum of $1,255 depending on the number of children in the household, provides significant relief for qualifying families.

Conclusion

In conclusion, navigating the intricate landscape of state tax codes can unearth valuable opportunities to optimize your tax returns. By leveraging these state tax credits effectively, taxpayers can alleviate their financial burdens and secure much-needed savings during tax season.

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