This is an article from PT over at PTMoney.com. Head on over to his site and to get his 52 Ways To Make Extra Money e-book.
It’s that time of year again. Time to file your taxes. Whether you do it yourself, or you hand things over to a CPA, it’s good to be familiar with some tax basics. Even if only to be able to recognize when you should be saving in a particular area. You want to get the biggest refund, or pay the least amount of tax that you can, right? Let’s review the top tax credits available, as well as identify which ones are refundable.
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About Federal Income Tax Credits
Credits are different from deductions. Simply put, credits lower your taxes and deductions lower the income to be taxed. Therefore, credits have a bigger impact on the amount of taxes you’ll pay this year. There are two main categories of credits. Those that are refundable and those that are non-refundable. Refundable tax credits are the best variety. You get money back, even if you didn’t have enough taxable income this year.
Refundable Tax Credits
- Earned Income Tax Credit – This is a tax credit available to low-income individuals. It increases dramatically if you have kids. The amount of the credit varies greatly based on your income. The maximum for qualifying people with 2 or more kids is around $5,000.
- First-Time Home Buyer Tax Credit – First-time home buyers, and existing home buyers who are upgrading can qualify for this big credit. Up to $8,000 for first-timers. The deadline to buy has been extended into 2010.
- Making Work Pay Credit – This credit was part of the latest economic stimulus. It’s for up to $400 per person who works. If you didn’t get it credited to your paycheck make sure you get it when you file.
- American Opportunity Tax Credit – This is another temporary credit that really just upgrades the HOPE Credit, a credit for post-secondary education expenses. One aspect of the upgrade is that it’s now a partially refundable credit. The maximum credit is $2,500, with $1,000 being refundable.
Non-Refundable Tax Credits
- The Child Tax Credit – Did you welcome a new baby in 2009? If you qualify (income and age), you get $1,000 back as a credit.
- Child and Dependent Care Tax Credit – If you paid for qualifying daycare for your child, you may qualify for a credit of up to $3,000. The daycare provider must have specific requirements.
- Home Energy Efficiency Improvement Tax Credits – Made energy-efficient upgrades to your home last year (insulation, windows, heaters, etc.)? You may qualify for up to $1,500 in credits.
- Retirement Savings Contribution Credit (Saver’s Credit) – This is my favorite new credit. Lower-income earners get a credit for a percentage of the money they save for retirement. Up to 50% of your contributions.
- HOPE Credit – This has been replaced by the American Opportunity Tax Credit for 2009 and 2010. It normally provides $1,800 in credits for the first two years of college.
- Lifetime Learning Credit – This credit picks up where the HOPE credit leaves off. You get up to $2,000, even if you’re only part-time.
- Alternate Motor Vehicle Tax Credit – There are some nice credits for those willing to invest in a hybrid, fuel cell, or alternative fuel vehicle. The amount of credit depends on the model purchased. The IRS has a full list on their website.
- Plug-In Electric Vehicle Credit – This is also called the Golf Cart Tax Credit. It’s similar to the alternative motor vehicle credit. You get a nice credit simply for buying a qualifying vehicle. Yes, glorified golf carts are included in this list.
- Adoption Tax Credit – This tax credit applies to domestic and international adoptions and covers around $10,000 in expenses. There are a ton of rules and qualifiers to this credit, so visit the IRS for all the info.
Visit IRS.gov for a list of even more (although rare) federal income tax credits.
Don’t Forget State Tax Credits
Remember that if you live in a state where you’re required to pay income taxes you’ll also want to be on the lookout for any state tax credits. Visit your state’s Department of Revenue to find out what’s available.
Kickdebtoff says
Great leads here,
Just curious whether it matters how much you spend on school for the HOPE credit or life learning credit.
Kickdebtoff´s last post ..The 10 10 80 principle
Austin says
Wow, I had no idea about a lot of these. I’m going to be doing my taxes for the first time so I’ll definitely have to bookmark this for future use.
Austin @ Foreigner’s Finances
David says
Was hoping to find a few “gems” here that I didn’t already know about.
No such luck–but good solid tips.
Good one about the state credits too!
David/Yourfinances101´s last post ..Sledding and Fixing Your Finances
PT says
@Kickdebtoff – Yes, those numbers I used above were the approximate maximums. You have to spend it to get it back.