Don’t Let These Tax Credits Go Down the Drain
Our friends at LearnVest offer sound financial tips and advice for every aspect of life. Check out this post on money-saving income tax credits.
Want to pay less in taxes?
Unless you’re Warren Buffett, the answer is probably, “Yes!”
There are several ways to (legally) pay less in taxes. There are deductions, exemptions and — what we’ll talk about in this post — credits.
Unlike deductions and exemptions, which lower the amount of income you are taxed on, credits directly reduce the amount of taxes you owe. So if you receive a $1,000 credit, that means you will pay $1,000 less in taxes. Sweet and simple, right?
Read on to find out if you can claim any of the most commonly claimed credits.
If you have a low income …
You could claim the Earned Income Credit. This credit, worth up to $5,891, applies to people whose earned income and Adjusted Gross Income fall below a certain threshold. Unlike most credits, the EIC is refundable. That means when the EIC you qualify for exceeds the amount of taxes you owe, you get a refund. Look at the chart below to see which category applies to you. If your income is less than the number listed, you may qualify.
If you plan to claim this credit, you will need all the information listed here, such as last year’s federal and state income tax statements, all your income statements for the current filing year and information on caretakers of any dependent children.
If you made energy-efficiency improvements to your home …
If you lowered your energy bills by sealing up your home, you get even more money from the IRS! The Nonbusiness Energy Property Credit is for homeowners who made energy-efficient improvements such as insulation, new windows and furnaces. For 2012, you can get a credit worth 10 percent of the cost of the qualified efficiency improvements you made. You can claim up to $500 over your lifetime.
What if your electricity comes from your own green sources? You should check out the Residential Energy Efficient Property Credit. This credit gives homeowners 30 percent of what they spend on qualifying property such as solar electric systems, solar water heaters, geothermal heat pumps, wind turbines and fuel cell property. No cap exists on the amount of credit, except for fuel cell property.
If in this coming year you decide you want to go green for your home, the IRS suggests that you check with the manufacture’s tax credit certification before you purchase. This can normally be found on the packaging or the company’s website. Full details are available on Form 5695.
Read about more tax credits on LearnVest.
More From LearnVest:
- 5 Steps to Surviving an IRS Audit
- 10 Tax Filing Mistakes to Avoid
- What to Do If You Can’t Afford to Pay Your Taxes
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.