We've only got two weekends left before the April 17 filing deadline. So that you don't have to spend all this Saturday and Sunday tracking down ways to trim a few dollars off your tax bill, below are a dozen tax credits that could be beneficial.
Remember, credits are better than deductions. True, deductions reduce your taxable income. But in determining your actual tax bill, a deduction is worth, at best, only 10 to 35 cents per dollar, depending on your tax bracket.
Credits, on the other hand, reduce your tax bill dollar for dollar. If you owe $1,000 and can claim a $500 credit, the check you have to write Uncle Sam is cut in half. A few credits can even increase your refund amount.
Some credits have been around for ages. A couple are new this year. One is good on 2006 returns only. And others are limited to taxpayers in very specific situations. But check out the entire list to make sure you don't miss any chance to lower your tax bill.
1. Telephone Federal Excise Tax Credit: Available for the 2006 tax year only, this credit refunds federal excise taxes you paid on long-distance phone calls between March 1, 2003, and July 31, 2006, via land line, Internet and cell phones. Taxpayers must file a tax form to claim the credit, and have a choice of calculating actual amounts paid or using a standard credit amount.
Even if you are not required to file a tax return, you can file Form 1040EZ-T just to receive this tax credit. "Long distance phone cards also qualify, but for the taxpayer who paid the federal excise tax, which is typically the retailer; not the store customer," says National Association of Tax Professionals (NATP) member Michael Helffrich, a certified financial planner (CFP) from Minneapolis, Minn.
You can read more about the phone tax in my earlier blog postings:
- Background on the tax
- Exact credit amounts
- Problems in claiming an exact phone tax amounts and
- Free online filing for some phone credit claims
2. Residential Energy-Efficient Property Credit and Home Improvement Energy Credit: Energy efficient improvements made to U.S. primary residences are available for various improvements that are made between Jan. 1, 2006, and Dec. 31, 2008. These credits are for the 2006 to 2008 tax years only, unless extended.
Residential credits apply for certain categories of solar equipment, and home improvement credits include qualified energy-efficient building components installed in your main home, such as insulation, exterior windows and doors, heat pumps, heating equipment and main air circulating fans.
3. Earned Income Tax Credit (EITC): For low and moderate income earners, both individuals and families, this credit is based on income and family size. If the EITC amount exceeds the owed amount, it may result in a refund for those who qualify. "Don't forget that a working mom can still take the credit even if her ex takes the children as dependents," says NATP member Louise Gritmon, an Enrolled Agent (EA) in Medford, N.Y. "She can still file as head of household and take the EITC, which will give her a much better refund than filing as a single with no dependents."
4. Child and Dependent Care Credit: This credit is for care expenses for children under age 13 or for a disabled spouse or dependent, so that a taxpayer can go to work.
It is subject to limitations.
5. Child Tax Credit: The maximum amount of this credit is $1,000 for each qualifying child under the age of 17 and can be used in addition to the Child and Dependent Care Credit. "This credit phases out for those in higher income brackets," notes Daniel Wishnatsky, a CFP in Phoenix, AZ.
6. Education Credits: Two credits are available for those who pay higher education costs, the Hope Credit and the Lifetime Learning Credit. The Hope credit is for payment of the first two years of tuition for eligible students claimed on your tax return, and Lifetime Learning is for all post-secondary education tuition for an unlimited number of years. Taxpayers cannot claim both credits for the same student in one tax year.
7. Health Coverage Tax Credit: This new tax credit can pay up to two-thirds of health plan premiums for individuals who lost their jobs due to the effects of international trade and meet certain criteria, and those who receive benefits from the Pension Benefit Guaranty Corporation (PBGC) and are at least 55 years old.
8. General Business Credits: The general business credit is an umbrella term for a number of tax credits and it is worth taking a look at this lengthy list to see if any of these credits may apply to you. Included among these credits are such items as low income housing, alternative motor vehicle, welfare to work, and many other credits.
9. Retirement Savings Contribution: For those with qualified retirement savings contributions including traditional IRAs, Roth IRAs, SEPs, or SIMPLE plans, a percentage of contributions may help you save on your taxes. Taxpayers who are at least age 18 at year-end and not a student or claimed on someone else’s tax return as a dependent, are eligible for this credit if income is below a specified amount. And don't forget: You can still contribute to an IRA for 2006 up until April 17.
10. Credit for the Elderly and Disabled: If you are a U.S. citizen or resident age 65 or older with a permanent and total disability, or you've retired at a younger age and receive taxable disability benefits, consult IRS Publication 524, Credit for the Elderly or the Disabled, to review specific qualifying criteria.
11. Adoption Credit: If you are an adoptive parent, you may be eligible for a credit of up to $10,960 of qualifying expenses for a qualifying child. For special needs children, you do not need to meet the qualifying expense criteria.
12. Alternative Fuel/Hybrid Vehicle Credit:
In 2006, this tax break went from a deduction to the more tax-valuable credit form. But the bad news is that the credit is not a fixed amount. The exact credit that you can claim depends on which vehicle you buy, when you buy (or bought) it and how many other people purchased fuel-efficient vehicles from the same manufacturer.
You can read more about the hybrid credit machinations in these previous blog postings.
I hope you found a few ways to save on your 2006 return and some strategies to consider so that your 2007 taxes will be as low as possible, too.
And I especially hope that you still have plenty of non-tax time left to enjoy your weekend!