TAX NEWS - June 2010

Tax credits to save money

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself.

Most tax credits are nonrefundable: If the credit amount exceeds the tax owed, no refund is given. Refundable credits are different: If the credit amount exceeds the tax owed, a refund may be due to the taxpayer. The following are some credits which many people are not aware of and should be taken advantage of:


Child and dependent care credit — If you paid someone to care for a qualifying individual so you (and your spouse if you are married) could work or look for work, you may be able to claim this credit. The credit is a percentage, based on your adjusted gross income, of the amount of work-related child and dependent care expenses you paid to a care provider.


Credit for the elderly or the disabled — You may be able to take the credit for the elderly or the disabled if you're age 65 or older and meet certain income requirements; or you're younger than 65, retired on permanent total disability and received taxable disability income during the year.


Credit for contributions to retirement plans and IRAs — If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.


Lifetime learning credit — You may be able to claim this credit of up to $2,000 for qualified tuition and related expenses paid for all students enrolled in eligible educational institutions.


Residential energy efficient property credit — You may be eligible for a 30 percent tax credit for the purchase of qualified solar electric property and qualified solar water heating property (used exclusively for purposes other than heating swimming pools and hot tubs).