Credits Available to Reduce Your Federal Tax Debt, 2009

There are many credits available to reduce the amount of taxes you owe. These types of credits do not reduce your Adjusted Gross Income or A.G.I. but do reduce the amount of tax you owe on that A.G.I. Credits will not allow you to reduce your tax to less than zero but when combined with any payments you have made and the additional child tax credit or first-time home buyer credit, among others, you can see an increase in your tax refund.

Child and dependent care credit:

The child or dependent care credit can reduce the taxes you owe by up to $6000. You must have an eligible child or dependent and eligible care expenses. You can receive up to $3,000 credit for one child or dependent and $6,000 for two or more. There are many rules that need to be followed for this credit but instructions and information is available at the bottom of this article. You will need to complete form 2441 to figure your tax credit for this.

Credit for the elderly or disabled:

If you are over the age of 65 at the end of 2009 or are under 65 and are totally and permanently disabled, received taxable disability payments and have not reached the mandatory retirement age, you may qualify for this credit. There are numerous rules for this credit so be sure that you fully read all instructions. However, this credit can give you from $3,750 to $7,500 in credit on your tax return. This is filed with Schedule R.

Education credit:

The former Hope credit is now called the American opportunity credit. In addition to this credit there is also the lifetime learning credit. You can not take both credits in the same tax year for the same qualifying student but you can take different credits for different students, Different rules apply for each of these education credits. The American opportunity credit can provide you with up to $2,500 in tax credit for qualified education expenses. You can still take the former Hope credit for up to $1,800 if you do not take the American opportunity credit. The lifetime earning credit can give you up to $2,000. If the student was in a Midwestern disaster area these last two credits can be doubled.

Retirement contribution credit:

Contributions made to a traditional or Roth IRA are eligible for the Saver's credit. This credit is limited by your A.G.I. and other restrictions do apply. The credit is figured on form 8880 and must be attached to your tax return.

Child tax credit:

The child tax credit is available for taxpayers with one or more qualifying children. This credit is in addition to the child care tax credit and is available for children under the age of 17 at the end of the tax year. You can receive a credit of up to $1,000 for each qualifying child.

Foreign tax credit:

In many cases you can take a credit for taxes paid to a foreign country or U.S. possession. You can however, also list these taxes paid as an itemized deduction. You need to complete form 1116 unless you meet certain exceptions.

Other credits:

Another credit to reduce taxes owed can come from the Residential Energy Efficiency Property Credit and this can also increase your refund. This is found on line 52 of the 2009 1040 form. Form 5695 must be submitted with your return. You can receive credit if you own a qualified hybrid motor vehicle. Instructions for this can be found on form 8910. Certain lower income tax payers can receive a mortgage interest credit. Use form 8396 to figure out the credit, you can receive up to $2,000.

The first-time home buyers credit does not reduce the amount of tax owed on your return but can give you a credit of up to $8000 to the amount of tax paid and this can be refundable to you. There are requirements that must be followed and form 5405 must be filed with your return.

Always check the most recent updates available from the I.R.S. for the current tax year before you file your taxes. Changes in the tax system occur frequently and many times the changes are beneficial to the tax payer. Do not miss out on any credits or deductions that you can legally take and get the most from your tax refund.

References and form links: http://www.irs.gov/publications/p17/pt06.html

Energy credit form: http://www.irs.gov/app/vita/globalmedia/5695.pdf

Child tax credit: http://www.irs.gov/publications/p17/ch34.html#en_US_publink1000174527

Credit for the elderly and disabled: http://www.irs.gov/pub/irs-pdf/p524.pdf

Child and dependent care expenses: http://www.irs.gov/pub/irs-pdf/p503.pdf

Education credits: http://www.irs.gov/publications/p17/ch35.html