Home / Tax Reduction Strategies / Tax Credits
You should claim all federal income tax credits that you are eligible to claim. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable, which means your income tax could be reduced to $0 (zero dollars) and even to the point that you would receive a refund without paying any taxes.
Below are the tax credits available for you to claim. Each has its own link on how to claim those for which you are eligible to claim.
Earned Income Tax CreditThis is a refundable credit for low-income hard working individuals and families. Income and family size determine the amount of the EITC. When the EITC exceeds the amount of taxes you owe, it results in a tax refund.
The Earned Income Tax Credit is automatically calculated by the tax program after you have entered your personal information, your earned income (wages or self employment income), and your family size. There is nothing for you to enter.
Child Tax Credit and Additional Child Tax CreditThis credit is for those who have a qualifying dependent child under the age 17 on December 31,2005. The maximum amount of the credit is $1,000 for each qualifying child.
The child tax credit is automatically calculated by the tax program after you have entered your personal information, your taxable income, and claim the child as a dependent on your tax return. If you are not the custodial parent, you will need a release form from your ex-spouse to claim the child. The child does not have to live with you.
This credit can be claimed in addition to the credit for the additional child tax credit, and, if you are the custodial parent, the child and dependent care tax credit.
Child and Dependent Care CreditThis credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable you (and your spouse, if married) to work. There is a limit to the amount of qualifying expenses. The credit is a percentage of those qualifying expenses.
To claim this credit you need the name, address, and social security number (or business tax identification number, and the amount paid in 2005.
Adoption CreditAdoptive parent(s) can take a tax credit of up to $10,630 for qualifying expenses paid to adopt an eligible child. A credit of up to $10,630 may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses.
Credit for the Elderly and DisabledThis credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability. There are income limitations.
The program automatically generates the form needed to claim the credit, after you have inputted your personal information, date of birth, and taxable and non-taxable (social security) income
Education CreditsThere are two credits available, the Hope Credit and the Lifetime Learning Credit, for people who pay higher education costs. The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student whom you claim as a qualifying dependent on your tax return. The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. You cannot claim both credits for the same student in one year.
Retirement Savings Contribution CreditYou may be able to claim a credit for a percentage of your qualified retirement savings contributions, such as contributions to a traditional or Roth IRA or salary reduction contributions to a 401(k) or SIMPLE plan. To be eligible, you must be at least age 18 at the end of the year, not a student, nor an individual for whom someone else claims you as a dependent. Also, your adjusted gross income (AGI) must be below a certain amount.
Other Specialized Credits
There are other specialized credits available to eligible taxpayers, such as tax shelters or oil and gas production. Since they are so specialized and complex we do not provide any information except for seeing a good tax attorney.
