| In our last article, we looked at the difference | | | | Additional Child Tax Credit (ACTC) which is |
| between credits and deductions and showed why | | | | refundable. |
| credits are better. | | | | Here's the best way to look at it: if you use the CTC |
| We also promised to tell you about nonrefundable | | | | to zero out your tax bill, the ACTC kicks in to |
| tax credits. These credits are useful, but they're not | | | | increase your refund. Finally, a way to get paid for |
| the best. Stick around for our last article in this series | | | | the kids! But remember only for children under 17. |
| on refundable tax credits that show you how to | | | | 4. Dependent Care Tax Credit (DCTC) |
| really put some of Uncle Sam's money in your | | | | In today's two working parent families, the DCTC |
| pocket. | | | | allows a credit for amounts paid for child care. To |
| Tax credits are targeted to activities that the | | | | take this credit, the name, address and Tax |
| government wants us to invest in. For example, to | | | | Identification Number (Social Security Number or |
| cut reliance on foreign oil or save energy in our | | | | Federal Tax ID Number) is required. |
| homes, there is an energy tax credit. | | | | This credit is applied based on income. For example, |
| As a reminder, tax credits offer a dollar for dollar | | | | income up to $15,000 gets a 35% of dependent care |
| reduction of your tax bill. If you have a $500 tax | | | | expense tax credit. In this example, if the day care |
| credit, it reduces your tax bill by $500. So, if you | | | | expense was $1,500, the credit would be $525. |
| owed $500, now you owe nothing. Of course, if you | | | | 5. Adoption Tax Credit |
| owe $100 - you still just owe nothing. That's why | | | | This is a nice credit if you would like to adopt a child |
| these are called non-refundable tax credits. | | | | (excluding step-children). It also has an exclusion |
| They help you pay your tax bill, but stop short of | | | | attached to it that could bring the total write-off to |
| putting money in your pocket. | | | | $23,300. |
| Let's look at some of the best non-refundable tax | | | | The credit alone is worth up to $11,650 and reduces |
| credits out there. | | | | your tax bill. Eligible expenses are: travel (including |
| 1. Savers Tax Credit | | | | meals and lodging), adoption fees, attorney fees, and |
| We like to call this the "double whammy" tax credit. | | | | court costs. The adoption can be for a domestic or |
| For one action you get two benefits. The first | | | | foreign child. |
| benefit is you're putting money in a retirement plan | | | | The exclusion amount for adoptions is also $11,650. |
| for your future, and it grows tax-free (it is only | | | | This is how much your employer (or company) can |
| taxed when you take it out). | | | | reimburse you without it becoming income to you. |
| The other benefit is you get a $1,000 tax credit | | | | 6. Energy Tax Credit |
| ($2,000 if married filing jointly). You get this credit if | | | | This credit promotes efficient energy use in our |
| you participate in your company's retirement plan. | | | | homes and cars. Home improvements like |
| 2. Educational Tax Credit | | | | replacement windows, insulation, tank-less water |
| The ETC is handy in homes where higher education is | | | | heaters, exterior doors, and certain high efficiency |
| practiced. Any family member can take this | | | | heating and air conditioning (HVAC) units qualify for |
| non-refundable tax credit. It is for education beyond | | | | this credit. |
| high school. | | | | The credit is worth 10% of the cost and can go up |
| The ETC is highest in the first two years after high | | | | to $1,500. |
| school (called the HOPE credit) - up to $1,800 ($3,600 | | | | In addition, major energy changes like installing solar |
| if you live in the 2008 Midwest Disaster Area) per | | | | electric or water heaters is worth 30% of the cost |
| student. | | | | up to $2,000 as a tax credit. |
| The Lifetime credit is for higher education beyond | | | | Finally purchasing a hybrid car from certain dealers |
| the first two years. This credit has a limit of $2,000 | | | | (excluding Toyota and Honda) can bring a tax credit |
| ($4,000 if you live in the 2008 Midwest Disaster | | | | worth $450 up to $3,000. Buy a plug-in hybrid electric |
| Area) per return. | | | | car, and the credit can run up to $7,500. |
| The ETC has another special option: you can take it | | | | Each of these tax credits is separate from the |
| as either a credit or as a deduction. You choose the | | | | others so they can be added together on one return. |
| option that brings the greater tax benefit to you. | | | | If you are planning on home improvements this year, |
| This tax credit is based on the cost of tuition and | | | | purchasing a new car, or considering energy |
| books only. Living expenses (room and board) are | | | | efficiency upgrades, your choices can save you |
| excluded. | | | | thousands. |
| 3. Child Tax Credit (CTC) | | | | This is just a taste of what tax credits can do for |
| The CTC is a sweet offering just for having kids. It | | | | you. |
| is $1,000 for each child under 17 that is your child, | | | | Be sure to read part three of this series. You'll |
| step-child, foster child, sibling, step sibling or any | | | | discover how simple it is to have Uncle Sam putting |
| descendant of these relatives. | | | | money INTO your pocket. Now that's icing on the |
| The CTC is a non-refundable tax credit. However, if | | | | cake. |
| you are unable to take the full CTC, there is an | | | | |