What other tax credits are available on your income tax return? The credits we will be talking about this week are all deducted from your tax, not from your income. For a full list of all the credits available, please refer to the instructions to Form 1040 found on www.irs.gov.
Child and Dependent Care Expenses
If you pay someone to care for your child or other dependent so you can work or attend school, a portion of those payments can be used as a credit against your income tax. You must complete Form 2441 and attach it to your tax return.
In addition to the amount you paid, you will need to have the care provider’s name, address and federal identification number (Social Security number or Employer Identification number). You will also need to list the names and Social Security numbers of your dependents and the amount you paid to the provider for each child.
If you received employer’s benefits to help pay for your child care expenses, you will need to complete Part III of Form 2441.
Credit for Education Costs
If you paid qualifying higher education costs for yourself, your spouse, or one of your dependents, check out Form 8863 to see if you can use a portion of those payments as a credit against your taxes.
For each student, you will need their name and social security number, the name and address of the educational institution, and the amount paid. If the student is an undergraduate, you may qualify to use the American Opportunity Credit.
The maximum credit is $2,500 per eligible student. The credit phases out if your modified adjusted gross income (MAGI) is greater than $180,000 for married filing jointly or $90,000 for all other filers.
If the student has already complete four years of higher education, the Lifetime Learning Credit may be available to you. The maximum credit here is $2,000 per return, not per student. The Lifetime Learning Credit phases out if your MAGI is greater than $128,000 for married filing jointly or $64,000 for all other filers.
Child Tax Credit
You may qualify for the child tax credit if your child:
- Was under age 17 at the end of 2014.
- Did not provide more than half of his or her own support.
- Lived with you for more than half of 2014.
- Is claimed as your dependent on your tax return.
- Does not file a joint tax return.
- And was a U.S. citizen, national or resident alien.
The maximum credit is $1,000 for each qualifying child. Your allowed credit may be reduced if your modified adjusted gross income exceeds the limits for your filing status.
If your income is low, you may also qualify for the Additional Child Tax Credit. To claim this additional credit, you must complete Schedule 8812 and attach it to your tax return.
Earned Income Credit
You may qualify for the Earned Income Credit if one of these is true:
- You have three or more qualifying children living with you and your adjusted gross income is less than $46,997 ($52,427 if married filing jointly).
- You have two qualifying children living with you and your adjusted gross income is less than $43,756 ($49,186 if married filing jointly).
- You have one child living with you and your adjusted gross income is less than $38,511 ($43,941 if married filing jointly).
- You have no children living with you and your adjusted gross income is less than $14,590 ($20,020 if married filing jointly.
You must provide all information required on Schedule EIC for each qualifying child. There are additional requirements such as you have to have earned income, you have to have a Social Security number that allows you to work, you cannot file as married filing separately, and you cannot have investment income greater than $3,350.
Schedule EIC contains this warning: “If you take the EIC even though you are not eligible, you may not be allowed to take the credit for up to 10 years.”
For more information on any of these credits, please contact your tax advisor or go to www.irs.gov.
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.