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There are a number of tax credits that are available to individual taxpayers and small businesses. Unlike tax deductions which reduce your taxable income, tax credits reduce the actual tax dollar for dollar. This section includes the more commonly available tax credits.
- Home Energy Credits
- Tax Credit for Residential Energy Improvements - A credit for energy-savings improvements made to a taxpayer’s principal residence located in the United States is available through 2016. The credit generally equals 10% of a homeowner’s cost of eligible energy-saving improvements, up to a maximum lifetime tax credit of $500. Thus for the current year, if the total of nonbusiness energy property credits taken in prior years is more than $500, no credit is allowed in the current year. Some of the energy property categories have lower limits, such as $200 for exterior windows and skylights.
- The Earned Income Credit
- The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to $6,269 for 2016 (the credit is inflation adjusted annually, for years other than 2016 call this office). So, you could pay less federal tax or even get a refund. The credit is a refundable credit, so you can receive the benefits of the credit even if you may not owe any taxes. That’s money you can use to make a difference in your life.
- Child Tax Credit
- Taxpayers who have a qualified child may be eligible for the child tax credit. The maximum credit amount is $1,000 and is generally non-refundable (can only offset income tax liability, both regular and alternative minimum (AMT)) but see exception below.
- Child & Dependent Care Credit
- A nonrefundable tax credit is available to some taxpayers for the expenses incurred for the care of a child (generally under 13 years of age), disabled child, spouse, or other dependent while the taxpayer is gainfully employed, (or is job seeking). In addition, employer dependent care assistance programs allow employees to exclude from income certain payments expended for child and dependent care.
- Adoption Credit
- Adoptive parents may be able to claim a dollar-for-dollar tax credit up to $13,460 for 2016 (up from $13,400 in 2015) for the “qualified” expenses of adopting a child for each adopted child. That is equivalent to a deduction of over $53,848 for a taxpayer in the 25% tax bracket.
- Work Opportunity Tax Credit
- Employers may elect to claim a work opportunity credit (WOTC) for a percentage of first-year wages, generally up to $6,000 per employee, for hiring workers from a targeted group. The credit is in lieu of deducting the compensation on which the credit is based as an expense on the employer’s tax return. First-year wages are wages paid during the tax year for work performed during the one-year period beginning on the date the target group member begins work for the employer.
- AMT Credit
- The alternative minimum tax credit (AMT) is a frequently misunderstood and overlooked tax credit. Oversimplified, the AMT credit is the result of incurring an AMT in a prior year, which generates a credit that can be used to offset the excess of the taxpayer's regular tax over the alternative minimum tax in a subsequent year, with unused credit carried forward to future years.
- Saver's Credit
- The Saver's Credit provides a nonrefundable tax credit for retirement plan contributions made by eligible, low-income taxpayers to IRAs and qualified elective income deferral arrangements. The credit provides incentives for lower income individuals to save for their retirement through available qualified plans. To qualify, the taxpayer must have reached the age of 18 by the close of the year and cannot be a full-time student or a dependent of another.
- First-Time Homebuyer’s Credit Recapture
- To stimulate home sales, Congress established the first-time homebuyer credit in 2008, resulting in some complicated recapture rules.