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Don‘t Overlook Valuable Tax Credits

Let’s face it. Most of us are not equipped to interpret U.S. tax code. Unfortunately, that means we often overlook tax considerations that apply to our particular situations and, therefore, miss out on a larger refund or a reduction in the amount of taxes owed.

According to tax preparation service Jackson Hewitt, much like tax deductions, tax credits serve to reduce the amount of tax an individual pays. Unlike tax deductions, which are a reduction in the amount of a taxpayer's income that is subject to tax, credits serve to allow a direct reduction of the tax due, lowering an individual's tax burden dollar for dollar.

Working with an accountant or professional tax preparer who is up-to-date on tax code and can identify the credits that apply to your specific circumstances is essential. When filing your 2011 tax return, the experts at Jackson Hewitt recommend paying close attention to these five commonly overlooked credits:
  1. Earned Income Tax Credit. This credit provides eligible individuals and families with low-to-moderate earned income with up to a $5,751 refundable credit. The credit is available for taxpayers with or without children and is based on income earned from wages, tips, salary and self-employment.
  2. Child and Dependent Care Credit. Taxpayers who worked and had dependent care expenses for a dependent child under age 13, or for a dependent or disabled spouse, may be able to claim a credit for these expenses. This nonrefundable credit is calculated based on dependent care expenses and income. It can reach a maximum of $1,050 for the expenses for one qualifying child, or $2,100 for more than one child.
  3. American Opportunity Tax Credit. Parents who are paying a child's qualified tuition and related higher education expenses may be able to take advantage of the American Opportunity Tax Credit, which requires the student to be enrolled at least half-time in one of the first four years of post-secondary education. If the student does not meet the requirements for the American Opportunity Credit, taxpayers may be able to claim the Lifetime Learning Credit. However, taxpayers cannot claim both a Lifetime Learning Credit and the American Opportunity Tax Credit for the same student in the same year.
  4. Residential Energy Efficient Property Credits. To qualify for the credits, the home must be the taxpayer's principal residence, located in the U.S., and the property or improvements must have a reasonable life expectancy of at least five years. These credits are available on the installation of solar water heating systems, solar energy production systems and qualified fuel cell power plants, among other energy efficiency improvements.
  5. Retirement Savings Contributions. Taxpayers who contribute to an IRA or an employer-provided retirement account, such as a 401(k), may be eligible for a credit based on up to $2,000 of their contribution for the year. This is in addition to any deduction or exclusion from income for the contribution.

As a Member of the Top 5 in Real Estate Network®, I have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact me any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.

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