An Overview of Credits that Reduce your Taxes

There are a variety of credits that will reduce your taxes; however, before you or your accountant include them; you should take the time to read the rules yourself; especially if you wait until the last minute to do your taxes when everyone is under the April 15th deadline. You do not want to be audited or believe you received a nice refund when you have to pay something back with penalties included. The reverse of this is: The Government has incorporated many new credits for taxpayers to use because they recognize the recessed economy. Most people are able to participate in some of the credits, even if they take the Standard deductions. Some of the choices are as follows:

1) THE VEHICLE SALES TAX DEDUCTION – If you purchased a new vehicle (or motor home) in 2009, you can deduct sales or excise taxes and you do not have to itemize. The first deduction would be $49,500; however, this phases out if your gross income as an individual is $125,000 or $250,000 for a joint return.

2) PREMIUM TAX DEDUCTION – Your home acquisition debt on the first or second home may be deductible for years 2007 through 2010.

3) STANDARD DEDUCTION – You might opt to simply take the flat amount that reduces your taxable income rather than to itemize. It varies by filing status, age, and whether  blind.

4) STANDARD DEDUCTION FOR PROPERTY TAXES – The Housing Assistance Tax Act of 2008 included an additional standard deduction for property tax if the taxpayer does not itemize. It is limited to $500 for individuals or $1,000 for joint.

5) FIRST-TIME HOMEBUYERS TAX CREDIT – This is a new, refundable tax credit of up to $7,500 for purchasing a primary residence after April 9, 2008, and before July 1, 2009. In other words, if you purchased this year; you would take the credit on your taxes due April 15, 2010.

6) CAR AND TRUCK EXPENSES – If you drive a car for business, medical, or charitable purposes; do keep good records to determine what you can include.

7) CHARITABLE DONATIONS – Donations of cash and property to qualified non-profits can be credited. You must keep records of contributions, especially of any gifts over $250. On non-cash contributions, records must be kept that indicate the value of each item given to charity.

8) ENERGY TAX CREDITS – Purchasing energy-efficiency equipment is allowable.

9) HOME MORTGAGE INTEREST – Mortgage interest should be reported on Form 1040, Schedule  A. You should complete Schedule A to see if the itemized deduction exceeds the Standard. If so, you will save more by itemizing.

10) ADOPTION CREDIT – If you have out-of-pocket expenses for an adopted child, keep detailed records so you can include the valid expenses.

11) CHILD TAX CREDIT – If ou have children, you qualify for up to $1,000 per child who is under age 17. Gross income must be below certain limits. If it exceeds $75,000 for individuals and $110,000 for married. It is limited by your tax liability. If you tax liability is $500, the tax credit is $1,000, you can only take a $500 deduction.

12) CREDIT FOR ELDERLY OR DISABLED – For age 65 or older or disabled; use Schedule R.

13)  CASUALTY AND THEFT LOSS – For disaster, theft, or casualty; use Forms 4684 and Form 1040, Schedule A.

14) CLASSROOM EXPENSES – If you are a teacher who paid for supplies and other materials out of your pocket; you can claim that on Form 1040 – Line 23.

15) ALIMONY-PAID DEDUCTIONS – If you paid alimony or separate maintenance to your ex-spouse, you report the total spent for the year on Line 34 of Form 1040.

16) HYBRID CAR TAX – For vehicles purchased on or after January 1, 2006, ranging from $400 and $3,400 based on fuel economy. There are a combination of two separate tax credits. Because the math is complicated; the car manufactures and IRS will certify the tax credit amount.

17) IRA DEDUCTIONS – If you contribute to a Traditional IRA for 2004, it reduces your taxable income dollar-for-dollar.

18) JOB SEARCH – If you look for a job in the same line of work as your previous one; you can deduct the expenses as an itemized deduction on Schedule A. Phone calls for seeking employment, career counseling (if it exceeds 2$ of your income), and printing of resumes.

19) SELF-EMPLOYED INSURANCE – Health insurance can be deducted for the full cost. It is not eligible for those participating in a group plan.

20) AMERICAN OPPORTUNITY TAX CREDIT – You can deduct up to $2,500 for people in undergraduate education for 2009 and 2010. (Formerly the Hope Credit).

21) SALES TAX DEDUCTION – This can be deducted against the Federal income taxes. Claim on Schedule A. (From 2005 through 2010, unless Congress extends).

These are just a few of the credits that you might want to consider using on your return in order to reduce your taxes. As indicated previously, do read the regulations or have your accountant explain each one of them before including because interest, penalties, and fines are not worth including them if you are not certain whether they are applicable.