Cygnet Income Tax & Bookkeeping Service

10 Tax Credits to Trim your Tax Liability

It’s perfectly legal to use all tax credits and deductions you’re eligible for to minimize the amount of federal income taxes you owe. How well a tax professional uses them to a taxpayer’s advantage attests to her or his level of expertise. “Tax credits are much more valuable than tax deductions,” explains , Steven P Bigos, enrolled agent (EA). “A credit reduces the tax you owe or increases your refund dollar-for-dollar. A deduction reduces the income you pay taxes on and might be worth only 10 to 35 cents for every dollar.” Here is a quick list of some of the more common tax credits to check out before sending in your tax return so you don’t miss opportunities to save. “Other credits may also be available depending on your situation,” advises Steven P Bigos, EA, in Warwick, RI. “Cygnet Tax will help you determine and maximize the credits you are eligible for.”

As our parents used to tell us when we were young, “Every little bit helps.” Of course, they were referring to putting money in the piggy bank, but the sage advice can also apply to saving money on your tax returns. Here is a quick list of tax credits and deductions to check out before sending in your tax return so you don’t miss any opportunities to save.

Earned Income Tax Credit (EITC) – This credit applies to low-income, employed individuals and families. The credit is based on income and family size, and if the EITC amount exceeds the owed amount, it may result in a refund for those who qualify.
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.
Child Tax Credit – The maximum amount of this credit is $1,000 for each qualifying child under age 17 and can be used in combination with the Child and Dependent Care Credit.
Adoption Credit – If you are an adoptive parent, you may be eligible for a credit of up to $11,390 in 2007 of qualifying expenses for a qualifying child. For special needs children, you do not need to meet the qualifying expense criteria.
Educator Expense Deduction – Those who are employed as educators through grade 12 and teach at least 900 hours in a year may receive a deduction for up to $250 for unreimbursed expenses used for the sake of the children. This deduction is only good until December 31, 2007.
Education Credits – Two credits are available for those who pay higher education costs – the Hope Credit and the Lifetime Learning Credit. The Hope is for payment of the first two years of tuition for eligible students you claim 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, and the credit can be claimed only on the return declaring the student as a dependent.
Medical and Dental Deductions – Qualified expenses for all of your claimed dependents (including any dependents deceased during the tax year) count toward your eligible deduction. Eligible expenses include insurance premiums, uninsured medical expenses, treatments not covered by insurance, travel for medical care, medically necessary equipment, and more.
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.
Credit for the Elderly and Disabled – If you are a U.S. citizen or resident age 65 or older, and retired on permanent and total disability, look into this credit.
Retirement Savings Contribution Credit – 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, 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. FYI, you can still contribute to an IRA for 2007 up until April 15, 2008.

If all of these credits and deductions have you scratching your head in confusion, don’t worry. Cygnet Tax can help, we have tax preparers who are experts and who keep up-to-date year-round on tax law changes. They can save you time and offer insight on how to use the tax breaks available to save you money.

Cygnet Tax is a Member of the National Association of Tax Professionals (NATP)

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251 Pawtuxet Avenue, Warwick, RI 02910
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