Every taxpayer is looking to get the biggest refund possible on his or her return, or at the very least, to owe a little less to Uncle Sam, but in order to do this you’ll need to take advantage of the most substantial tax credits for which you are eligible. Tax credits differ from deductions; while deductions will reduce the amount of your taxable income, credits are subtracted directly from the amount of taxes you owe. There are two primary types of tax credits: refundable and non-refundable. If a tax credit is refundable, any amount over the taxes you owe is given back to you. If a tax credit is non-refundable, on the other hand, the amount can only be used to reduce your tax bill; any additional amount is lost. In order to take advantage of tax returns, you have to know they exist. Many eligible taxpayers pay more than they should simply because they aren’t aware these credits are available. Don’t pay more than you have to; check out some of these substantial tax credits.
One of the most substantial tax credits is the Earned Income Tax Credit, available to workers who earn less than a given amount per year and who meet certain other criteria. Depending on your income, your filing status, and whether or not you have qualifying children in your household, this tax credit could be worth as much as $5,666 this year. This credit isn’t just available to parents, by the way; even with no qualifying children you could get almost a $500.00 break. Not only is this one of the largest tax credits available, it’s also refundable; but in order to get it you have to claim it on your tax return. The qualifying and disqualifying factors can be a little difficult to navigate, especially if you have joint-custody of a child or other special circumstances, so determining whether or not you can claim the Earned Income Tax Credit can be a tricky business. To find out if you’re eligible for the Earned Income Tax Credit, visit the IRS’s EITC Assistant at http://www.irs.gov/individuals/article/0,,id=130102,00.html. If you find that you do qualify, check with your state to see if they have a similar tax credit and see if you can claim that too.
In an effort to encourage homeowners to improve energy efficiency in their homes, the federal government has been offering non-refundable tax credits for the last several years. The Energy Efficient Home Tax Credit, which shaves money off your tax bill for upgrades like improved doors, windows, insulation, and new furnaces or water heaters, has been reduced for 2011. Upgrades must meet certain standards, however; for instance, furnaces and boilers must have an efficiency rating of 95 in order to qualify. The maximum deduction is now $500 versus last year’s $1,500, with individual limitations set on each category. The Renewable Energy Source Tax Credit, however, remains substantial for 2011 and allows you to recoup up to 30% of the cost of installing geothermal heat pumps, solar water heaters, solar panels, small wind turbines, and fuel cells.
While raising children gets ever more expensive, at least you can claim a tax credit come April 15th. Parents get a non-refundable $500 tax credit per qualified dependent or a refundable Additional Child Tax Credit, depending on your circumstances. Parents that adopted a child in 2011 are also eligible for an Adoption Credit that helps to offset expensive adoption costs. If you’re paying for care for a child, your spouse, or certain other individuals, you may be eligible for the non-refundable Child and Dependent Care Credit, depending on income, cost of care, and certain other qualifying criteria.
For college students or their parents, two possible credits can help offset the tuition you’ve paid. The American Opportunity Tax Credit can save you a $2,500 on your tax bill, depending on your tuition and as long as you meet certain criteria, while the Lifetime Learning Credit allows taxpayers to deduct 20% of their tuition (up to $2,000) with even fewer restrictions.
Here’s a substantial tax credit a lot of people don’t know about: if you meet certain income restrictions and are contributing to a qualified retirement account, you may be eligible for the Saver’s Tax Credit. Designed to encourage those with lower incomes to invest in retirement savings plans, eligible taxpayers can receive a credit of anywhere between 10% and 50% of a maximum of $2,000 in contributions, depending on your adjusted gross income. For those in the lowest income bracket, that can mean a credit of up to $1,000.