6 tax credits you've got to consider
Taking advantage of these money-saving tax credits is the quickest way to a bigger, better income tax refund for 2008.
Unlike a deduction, which reduces the gross income used to calculate how much you owe, a credit comes right off the bottom line of your tax bill.
So, while a $1 deduction might cut your taxes by 25 or 30 cents, depending on your tax bracket, a $1 credit will reduce what you owe the government by a full $1.
You don't even have to itemize your deductions to claim these credits.
(The economic stimulus bill passed Feb. 13 by Congress includes changes involving several of these credits that will kick in for 2009 tax returns.)
The Earned Income Tax Credit. This credit is designed to boost the bank accounts of low- and moderate-income workers. If you owe $200 in taxes, but are eligible for a $600 earned income credit, you'll get a check for $400.
Even if you did not earn enough to be required to file a tax return ($8,900 for single filers under age 65), you may be eligible for this tax credit. The main requirements are that you earn some income through working.
If you have two children, you must have made no more than $38,646 in 2008. If you have one child, the income limit is $33,995, and if you do not have children, the limit is $12,880.
Visit this IRS Web site to find out if you are eligible for this tax credit.
The Child Tax Credit. This credit is designed to help taxpayers who have a child under age 17.
You can get up to $1,000 per eligible child in addition to the usual $3,500 exemption you can claim for each dependent child. More low- and moderate-income families will be eligible for this tax credit on their 2008 returns because of changes to the tax code. Once again, you may get a refund even if you do not owe any taxes.
Just fill out IRS publication 972 to claim the Child Tax Credit.
The Recovery Rebate Credit. This is for anyone who didn't receive an economic stimulus check last year or didn't qualify for the maximum payout.
If, for example, you had a baby last year, then you can obtain another $300 tax credit because you have another dependent under 17 years old.
Or if you're on your own now, and your parents will no longer be counting you as a dependent on their 2008 taxes, you could qualify for the $600 individual tax credit.
To calculate whether you qualify for a bigger rebate, see the instructions and worksheet starting on page 61 of the Form 1040 instruction booklet.
Or, enter "RRC" -- for recovery rebate credit -- on line 70 of Form 1040 and the IRS will do the calculation for you. If you're eligible for additional money, it will be added to your regular refund.
If you have questions about this credit, visit this IRS page.
The First-Time Home Buyer Credit. This credit of up to $7,500 applies to home purchases between April 9, 2008, and June 30, 2009.
Most buyers who haven't owned a house in at least three years will qualify.
The credit is 10% of the home's purchase price, up to $7,500 for single filers and those who are married filing jointly.
Unfortunately, there's a big catch that usually makes us discourage home buyers from taking advantage of this tax credit: You have to pay it back over the next 15 years when you file future tax returns.
In other words, it's really a loan, not a grant.
But if you need money now, this credit can definitely boost your cash flow.
Use Form 5405 to claim this credit.
The new standard deduction for property taxes. Previously, only filers who itemized got a break based on real estate taxes they paid. Now, those who don't itemize can boost their standard deduction by up to $500 for single filers and $1,000 for those married and filing jointly.
To take advantage of this credit on form 1040, check the box on line 39C. If you are filling out Form 1040A, check box 23C.
The change in how forgiven mortgage debt is treated. When a lender forgives a debt, the government usually considers that benefit to be taxable income.
But for most homeowners, amounts forgiven in 2008 through bailout and refinancing programs will be tax-free up to $1 million. To qualify, the home must be your principal residence and the balance on your loan no more than $2 million after a portion of your debt is forgiven.
Use Form 982 to take advantage of this break.
More detailed instructions and examples are in the Internal Revenue Service's Publication 17.
And finally, don't pay to file your return electronically. As of Jan. 16, returns with adjusted gross incomes of up to $56,000 can use the government's Free File service.
Taxpayers who make more than $56,000 can also file their taxes electronically using Free File Fillable Forms. It is available for federal tax forms 1040A, 1040 and 1040EZ.