Tax Credits: How To Use Them To Benefit You
Ask anyone and they will surely tell you they pay too much in taxes. Fortunately, the federal government and many states have responded by creating a means to rebate taxes in the form of “tax credits.” Tax credits do not reduce your taxable income; they actually reduce the amount of tax that you owe.
There are a variety of tax credits available today that are designed to help people qualify for financial relief. Whether you are buying a home for the first time, raising children, pursuing an education for your child or yourself, are elderly or disabled, or you’re simply trying to stretch your dollars, there may be a suitable tax credit for you.
Education Tax Credits
The American Opportunity Tax Credit (AOTC) provides a maximum $2,500 credit for each student pursuing a degree, for up to 4 years of post-secondary education. The Lifetime Learning Tax Credit offers a credit of up to $2,000 for qualified education expenses. Note that the student may elect to receive only 1 education tax credit and certain income limitations apply.
Child Tax Credits
According to a report issued by the U.S. Department of Agriculture, it will cost the average middle class family approximately $286,050 to raise a child (born in 2009) to the age of 17. Child tax credits can help by providing up to $1,000 for each qualifying child under the age of 17.
Housing Tax Credits
The federal Homebuyers Tax Credit (up to $8,000 for first-time home buyers and $6,500 for repeat home buyers) has been extended to provide buyers who had binding sales contracts in place by April 30, 2010 with additional time. Qualified buyers now have until September 30, 2010 to complete their purchase.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) was created to help workers and families with modest incomes by reducing the amount of tax they owe or by providing a tax refund. The amount for which you may be eligible depends on your filing status and the number of qualifying dependents.
Elderly and Disabled Tax Credits
If you are age 65 or older, or disabled, you may be able to claim an Elderly and Disabled Tax Credit on your federal income tax return. To qualify as disabled, you must be retired, permanently and totally disabled, and receiving disability benefits.
Know your tax credit options when filing your taxes this year.