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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 reduced credit for home energy-savings improvements is available through 2013. The credit generally equals 10% of a homeowner’s cost of eligible energy-saving improvements, up to a maximum lifetime tax credit of $500. The cost of certain high-efficiency heating and air conditioning systems, water heaters, and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation, and certain roofs also qualify for the credit, though the cost of installing these items is not included.
- The Earned Income Credit
- The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to $6,143 for 2014. 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 qualify for the child tax credit. The maximum credit amount is $1,000.
- 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 $13,190 for 2014 (up from $12,970 in 2013) for the “qualified” expenses of adopting a child for each adopted child. That is equivalent to a deduction of over $52,750 for a taxpayer in the 25% tax bracket.
- Work Opportunity Tax Credit
- Employers can qualify for a tax credit for qualified wages paid to members of targeted groups and qualified veterans who were hired before January 1, 2014. The credit for targeted-group employees, except for long-term family assistance recipients and summer youth employees, equals 40% (25% for employment of 400 hours or less) of qualified first-year wages ($6,000 cap) for a maximum credit of $2,400 for each eligible employee. The maximum credit available for hiring qualified veterans may be more.
- 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.