It’s getting to be that time of year again when we all start thinking about taxes, and what we are going to owe in the spring. This probably goes without saying, but my goal is always to pay as little as possible to both Washington DC and Jefferson City.
A great way to do that is through the utilization of tax credits. Often, people confuse tax credits with tax deductions. They are not the same thing. Tax credits are credits applied directly to the amount of taxes you owe, while a tax deduction merely reduces the amount of your income that is subject to income tax if you itemize on your return. Since most people don’t, tax credits are exponentially better at reducing your total liability than a tax deduction is.
At the state level, one credit that I personally will be taking advantage of this year is the Missouri Maternity Home Tax Credit. This credit converts 70% of what you donate to a qualifying maternity facility into a credit that can be used to offset Missouri Income taxes you owe. In fact, as a board member of the Rotary Club of Independence, we are in the process of planning our annual Mardi Gras fundraiser to benefit one of these qualifying organizations, Mother’s Refuge. They are a local organization that provides shelter and assistance to pregnant teens. By supporting this wonderful organization, I can not only potentially save lives, but can save significant money on my taxes too.
If you are a business owner, another great Missouri credit is the Neighborhood Assistance Tax Credit Program (NAP). This particular program, open only to businesses, provides a 70% credit to eligible taxpayers who make a qualified contribution to an approved NAP project. An example of this comes from another local organization I support, Community Services League. They offer an amazing job training program called Bridges to Career Opportunities. It helps train low-income individuals for new careers here in the area. I don’t know about you, but I would rather use my money to help those struggling improve their lives, than giving it to politicians in Jefferson City so they can improve theirs.
While these two credits are good ones, my personal favorite is the recently passed MOScholars Tax Credit. Why is this my favorite? Because donations to it, qualify for a 100% credit of up to half of the donor’s total income tax liability. With this credit created to support Educational Assistance Organizations, qualifying donors can literally make a dollar-for-dollar swap of income taxes owed to Missouri, for contributions to an approved EAO.
I personally plan to work with the Herzog Tomorrow Foundation to replace half of my total 2022 Missouri income tax liabilities, with scholarships distributed to low-income families for private Christian education. This credit more than any other I will talk about seems like a no-brainer.
For a full list Missouri tax credits available to you, just go to https://dor.mo.gov/tax-credits/ There you can get information about the various tax credits available for 2022 and see which ones you may already qualify for.
On the Federal level, the recently passed Inflation Reduction Act put into place a wide variety of credits to incentivize green energy usage. For example, the Residential Clean Energy Credit offers substantial credits for those who seek to make their homes more energy efficient by installing heat pumps, wind turbines, solar energy systems, or new exterior windows and doors. If you are in the market for a car, the Clean Vehicle Credit could put thousands of dollars back in your pocket if you buy a new or used electric vehicle. These credits can not only save you money now, but can also result in decades of continued energy cost savings as well.
Going green isn’t the only way you can save some green. Among other things, adopting a child, going back to college, or even contributing to your own retirement account could all qualify you for a credit. Check out https://www.irs.gov/credits-and-deductions for a full list of what is available to you.
The bottom line on all of this is, during election years especially, politicians of both parties look for ways to buy votes by giving out free money to their constituents. Tax credits are a big way they do this. While I wish they instead just took less to begin with, it would be foolish not to take advantage of the tax benefits you qualify for. Perhaps with a little intentionality you can get your share of these credits and reduce the share that you send to them this April.