As tax season comes to a close, many taxpayers are looking for possible tax breaks to help lower their taxes. However, tax credits could potentially reduce a taxpayer’s tax bill dollar for dollar, says CCH, a Wolters Kluwer business and provider of tax, accounting and audit information, software and services.
“Tax deductions lower your taxable income, but their value is based on your tax bracket,” explained Mark Luscombe, JD, LLM, CPA and CCH Principal Federal Tax Analyst. “So, for example, a $1,000 tax deduction for someone in the 25-percent tax bracket would lower their taxes by $250. However, a $1,000 credit would lower their tax bill by $1,000.”
To help taxpayers take advantage of possible tax breaks, CCH has identified some of the top tax credits for 2011:
Green, green, green. There are several tax breaks available for making energy-efficient choices in your home, but taxpayers can also receive tax credits for their energy-efficient vehicles.
- Alternative Motor Vehicle Credit - This credit is available to taxpayers that bought a qualified fuel cell vehicle in 2011. The credit is also allowed for the cost of converting a vehicle to a qualified plug-in electric drive vehicle. To take the credit, you must complete Form 8910.
- Plug-In Electric Drive Motor Vehicle Credit - Taxpayers who used a qualified plug-in electric drive motor vehicle in 2011 for business or personal use may take this credit. The credit ranges from $2,500 to $7,500.
- Plug-In Electric Vehicle Credit - This credit can apply to a vehicle that has two, three or four wheels. Vehicles with four wheels must be low-speed. The credit, which is taken on Form 8834, is 10 percent of the cost of the vehicle, limited to $2,500 per vehicle.
Get credit for working. The Earned Income Tax Credit a refundable credit, allowing taxpayers to still receive money back from the credit, even if they don’t owe any tax. For 2011, the maximum EITC is $5,751 and the maximum earned income limit for claiming the EITC is $49,078.
Kids deserve some credit too. The child tax credit is $1,000 for each child. The 2010 Tax Relief Act also extends some enhancements to the adoption credit and the dependent care credit for two years.
It pays to learn. Taxpayers that are pursuing post-secondary education have two credits available to help them - the American Opportunity Tax Credit and the Lifetime Learning Credit, providing up to $2,500 per student per year and up to $2,000, respectively. Both have income restrictions.
CCH’s special tax season press center has more information about these credits and other tax season details.