If you have a child in college, getting a tax break is a given, but the hard part can be figuring out which one to pick, said Abe Schneier, senior technical manager for taxation at the American Institute of Certified Public Accountants.
“There are phase-outs as to your eligibility, based on your income,” he said. The Lifetime Learning Credit offers up to $2,000 for an unlimited number of years, while the American Opportunity Credit is up to $2,500 per year up to four years. Don’t be so quick to forgo them in favor of the maximum $4,000 tuition and fees deduction — the credits are likely to be more valuable.
Retirement Savings
Depending on how much you make, saving for retirement can be even more valuable. Current tax law offsets cash stashed in an IRA, 401(k) or other retirement plan, via a credit worth as much as 50 percent of contributions. Taxpayers can claim up to $1,000 total for single filers; $2,000 for couples filing jointly. But the value of the credit drops the more you make, and eventually phases out entirely. Individuals who make more than $27,750 and married couples filing jointly who earn more than $55,500 don’t qualify.
Green Improvements
Credits for installing energy efficient products have been around for years, and if you haven’t taken advantage yet, the current crop are in effect until the end of 2013, said Schneier. That includes 10 percent of the cost, up to $200, for qualifying windows and doors; $300 for a biomass stove; or 10 percent of the cost, up to $500 for insulation. But the projects must meet federal guidelines for efficiency, and the lifetime maximum for the credit is $500, he says. So if you claimed the full $500 credit back in 2008 for one project, you can’t claim the credit again, even for a different project. There is an exception, though: There’s a credit for 30 percent of the cost — with no maximum — to install a solar energy system, a residential wind turbine or a geothermal heat pump.
Child Care
Most families won’t forget about the credit for child and dependent care expenses, said Schneier. Depending on your adjusted growth income, families can claim a credit worth 20 to 35 percent of up to $3,000 in expenses for one child; or up to $6,000 in expenses for two or more. Expenses such as day camps — but not overnight camps — may still qualify.
Foreign Tax
You might have paid them, even if you don’t know it. “If your investments invest in foreign assets and pay taxes to that foreign country, you could actually get a credit back for foreign taxes paid,” said Ross. “Don’t miss that.” Look for your tally on Box 6 of your Form 1099-DIV.