5 Big Tax Credits

Mar 18, 2013 by

Claim tax credits to keep Uncle Sam poor

Uncle Sam’s bust. Claim your tax credits anyway!

To paraphrase ex-convict Martha Stewart: Tax credits—they’re a good thing.

While a deduction only reduces your taxable income, a tax credit body slams your tax bill directly. A $1 tax credit means $1 less you send Uncle Sam (or $1 more Uncle Sam sends you!). A healthy tax credit may well change your tax return’s bottom line from an Amount You Owe to a Refund.

The Big 5 Tax Credits

Unless you’re in Mitt Romney’s tax bracket (and can hire the same sort of tax planning help), these Big 5 tax credits are the ones we little people are most likely eligible to claim.

 

 

 

 

1. American Opportunity Tax Credit

This is the one that’s been in the news lately because of a H&R Block tax preparation software snafu. This credit helps with the first four years of post-high school education costs. Eligible students could be worth $2,500 a head to you. Woohoo! Among other eligibility criteria, Adjusted Gross Income must be less than $180,000 for married filing jointly or $90,000 otherwise. To learn more, check out IRS Publication 970, “Tax Benefits for Education”.

2. Child Tax Credit

Worth up to $1,000 per kid under age 17 on 31 December 2012, you’ll have to work through the eligibility criteria to learn whether you can cash in on this one. See Publication 972, “Child Tax Credit.”

3. Retirement Savings Contribution Credit (Saver’s Credit)

Targeting low to moderate income workers (Congress thinks the rest of you don’t need more incentive to save for retirement—ha!), the Saver’s Credit is in addition to the usual tax benefits associated with IRA or workplace retirement plan contributions. In brief, you may be eligible for the Saver’s Credit if your “modified” Adjusted Gross Income is less than or equal to:

→ $57,500 if married, filing jointly

→ $43,125 if filing status = head-of-household

→ $28,750 single, married filing separately, or qualifying widow(er)

The Saver’s Credit is worth $1,000 per eligible taxpayer. Read all about it in Publication 590-A, “Contributions to Individual Retirement Arrangements”. (Didn’t “IRA” used to be shorthand for Individual Retirement Account?)

4. Earned Income Tax Credit

The EITC: An oldie but a goodie. I wrote all about this one here, so I won’t repeat, except to re-emphasize that the the maximum credit is $5,891. Shazaam!

5. Child and Dependent Care Credit

Not to be confused with the Child Tax Credit which rewards you simply for being a parent, this one helps offset care you bought for a kid under age 13, or for a disabled spouse or dependent, to free up your time so you could work or look for work. Claiming this credit is complicated. I would like to tell you how much the credit can be worth so you can judge whether determining if you’re eligible is worth your time, but I’m unable to glean that number from Publication 503, “Child and Dependent Care Expenses”. Just take a peek at this IRS flowchart resembling nuclear missile launch instructions from page 3 of Publication 503:

Child Care Tax Credit eligibility flowchart

Are you eligible for the Child and Dependent Care Tax Credit?

I’d like to see a reality TV show based on randomly choosing a member of Congress to sit with a typical American family—say Honey Boo Boo’s—and walk them through mental obstacle courses like this chart that are a result of the federal tax code.

Did You Strike Tax Credit Gold?

How many of the credits have you or will you claim on your 2012 return? Did anybody hit the penta-fecta (claiming all five)? How about at least a trifecta?

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