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Over the past many years, Congress has added several new tax credits and deductions to the IRS code. Credits can be significant because they offset any tax dollar for dollar.
Here is a partial list:
Hybrid Vehicle Credit - taxpayers who purchase a qualifying vehicle after Dec. 31, 2005 may be eligible to claim up to a $3,150 credit
Child Tax Credit - now $1,000 per dependent child under 17
Additional Child Tax Credit - expanded dramatically in last few years; many taxpayers who owe no tax can still be eligible to receive an additional refund
Earned Income Credit - the eligibility rules were changed significantly in 2002; many taxpayers who didn’t qualify before can now receive this credit
Retirement Savings Credit - introduced in 2002, this credit is available to many lower income taxpayers who contribute part of their earnings to an IRA, 401k, 403b or similar retirement plan; eligible taxpayers can receive a tax credit for up to 50% of their contributions
Dependent Care Credit - increased in 2003 to as much as $2,100
Hope and Lifetime Learning Tuition Credits - even though these credits have been available for several years, many eligible taxpayers AND tax preparers still fail to take advantage of these valuable credits - up to $1,500
Adoption Expense Credit - available to those who have adopted US or foreign children - up to $10,000
Foreign Tax Credit - if you paid tax to a foreign country on investments you own, then you may be eligible to reduce your US tax by an equal amount
Some new deductions which do not require itemizing on Schedule A are also available. Deductions reduce you taxable income. They are not as beneficial as tax credits, but can still help reduce your tax.
Student Loan Interest - while this deduction has been around for a few years, recent changes to the tax laws now make more taxpayers eligible to take it.
Educator expenses - teachers take note; you may be able to deduct up to $250 of the cost of supplies that you paid for out of your own pocket.
Tuition and fees deduction - beginning in 2002, eligible taxpayers can deduct up to $3,000 of these expenses from taxable income; some taxpayers who are not eligible to take an education credit can still take this deduction.
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