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Follow the road to savings with tax credits
Follow the road to savings with tax credits

A tax deduction should never be overlooked, but it's a tax credit that can make a big difference in your tax bill. While a deduction will reduce your tax liability, it will only reduce it by your marginal tax rate. For example, if you're in the 25% bracket, a $1,000 deduction will save you $250 in taxes. But a credit is a dollar for dollar reduction of your tax liability. Regardless of your tax bracket, a $1,000 credit will reduce your tax liability by the full $1,000. In some cases, a credit will reduce your liability even below zero (called a refundable credit), giving you a refund of more taxes than you actually paid. Here are some of the more valuable credits.

  • First-time homebuyer credit. This is a new refundable credit that provides a credit of up to $8,000 for first-home purchases in 2009 made by November 30.

  • Child tax credit. If you qualify and meet income limits, you'll receive a $1,000 credit for each dependent child under age 17.

  • Retirement savings contribution credit. This credit is for low- and middle-income taxpayers who contribute to a retirement plan, such as an IRA or 401(k). This overlooked credit is as much as 50% of the retirement contribution to a maximum credit of $1,000. There is also a credit for businesses who establish new pension plans.

  • Energy credits. There are many energy-related credits — from the purchase of an alternative fuel vehicle, to the installation of solar/fuel cell property in a residence, to the production of biodiesel or ethanol.

  • Foreign tax credit. The foreign tax credit lets you claim a credit on your federal tax return for taxes paid to a foreign country.

  • Work credits. Credits are available to businesses for hiring certain low-income employees, employees residing in certain geographic locations, or various minority employees.

With over 40 credits available to individuals and businesses, all with their own rules and qualifications, it's easy to overlook some of them. Call us if you would like to review the credits for which you might qualify.

 


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