You may not want to think about 2013 taxes yet, but a little planning now could lead to significant savings on your next tax bill. That’s because you may be eligible for tax credits that you don’t know about, says Barbara Weltman, a tax attorney and author in Millwood, New York.
“Tax credits are more valuable than deductions because they reduce your tax bill dollar for dollar,” Weltman says. That means a $250 tax credit reduces your tax bill by $250.
However, tax credits require documentation and planning, so Weltman recommends giving them some thought now.
Following are some commonly overlooked credits:
Dependent Care Credit
If you have children, this child tax credit covers as much as 35 percent of child care-related expenses for working parents—up to $3,000 per child or $6,000 per family. Recent legislation made the credit permanent, and it’s available whether your children are in daycare or home-based care, with a babysitter or even at day camp during the summer.
To claim the dependant care credit, you’ll need to document how much you spend on childcare that allows you or your spouse to work.
Earned Income Tax Credit
This tax credit is designed to help low- and middle-income families keep more money in their pockets. Income limits vary depending on the number of children in your household. But the tax credit’s value ranges from $487 with no qualifying children to $6,044 with three or more qualifying children. It’s also refundable, meaning you could get a refund even if you owe no income tax.
American Opportunity Higher Education Tax Credit
Claim this tax credit to offset the cost of tuition, fees and course materials for undergraduate education at a college, university or technical school—it’s worth up to $2,500 for each of four years. The credit is partially refundable, which means you could receive up to $1,000 back even if you have no tax bill at all.
Lifetime Learning Credit
This credit can be used for graduate school, professional degrees or undergraduate education. With it, you can claim 20 percent of tuition and fees—totaling up to $10,000—or a $2,000 tax credit. And it applies for you, your spouse or your dependents.
Both higher education credits have income limits. And taxpayers must choose either the American Opportunity or the Lifetime Learning credit, so it’s worth taking time to look at your financial plan and figure out which will reduce your tax bill the most.
Energy Efficient Home Improvement Credit
Use this tax credit to offset the cost of projects that increase the energy efficiency of your home. The general credit is worth 10 percent of the cost of the project (up to $500), but some projects also have a set rebate amount. The U.S. Department of Energy (www.energy.gov) offers a complete list of products and projects that qualify.
Too often, Weltman says taxpayers often overlook tax credits—to their detriment. That’s why she suggests a visit the Internal Revenue Service website (www.irs.gov) to see which you can use in 2013. “Tax credits are very valuable,” she says. “But you have to stay alert to benefit from them.”