Claiming credits on your taxes will save you more money than taking tax deductions. A credit is a decrease in the amount you owe the IRS. A deduction is a only a decrease in gross revenue (income) before you figure how much tax you owe.

Here are some of the most common credits taxpayers may be able to take.

1. Education Tax Credits: There is the Hope Credit and the Lifetime Learning Credit. The Hope credit is for college tuition payments for you, your spouse or dependent. You can claim this credit for the first two years of college, for up to $1,650. On the Lifetime Learning Credit, you can claim up to $2,000 every year you, your spouse or dependent are in college.  For more info on these credits, read this post.

2. Adoption Tax Credit: Adopting a child can be very expensive, but you can claim a credit of up to $10,690 for the costs associated with adoption. There are certain rules you must follow in order to qualify for this credit, so you may want to contact a tax professional about your options. There is an income cap of $164,410 to be able to claim this credit.

3. Going Green: For several years now, the government has encouraged taxpayers to use more energy efficient products in in their homes, as well as hybrid vehicles. Energy efficient appliances, windows, water heaters, and solar panels can be a huge credit on your taxes.

4. Retirement Savings Tax Credit: The government gives tax credits to taxpayers who earn less than $25,000 as a single filer and $50,000 as joint filers while they put money in a retirement credit. The credit can be up to $1,000 depending on how you filed.

There are many other credits for which you may qualify. Talk to a tax professional to find out which credits you can claim.

Daniel Stoica Accounting Professional

The new school year is here and many parents will be enrolling their children in school for the first time, as kindergartners. Some taxpayers have questioned whether they can claim the dependent care credit for full-day kindergarten as well as after-school programs.

In order to qualify for the dependent care credit, you must have paid for the care of your dependent child who is under 13 years of age, and you must be employed. Married taxpayers will be considered employed if at least one spouse is working full-time and the other works either full or part-time, or is enrolled in school as a full-time student. If you are married, you will have to file a joint return in order to claim the credit.

The percentage for the credit is 35% of your eligible expenses when you have an adjusted gross income (AGI) of $15,000 or less. For every $2,000 beyond this AGI, the credit will be reduced by 1%, but cannot drop below 20% for an AGI of $43,000 or more.

You can take the credit for the first $3,000 for one child, and $6,000 for two or more children. For taxpayers whose income is more than $43,000, you can qualify for $600 for one child and $1,200 for two or more children. Qualifying expenses are defined as payments toward babysitters, day care and pre-school. According to the IRS, summer day camp may also qualify for the credit, but not overnight camp.

Some have argued that parents who have to pay tuition for full-day kindergarten should be allowed to deduct some of those costs, but a 2007 IRS regulation stated that kindergarten is education and parents cannot take a credit for tuition costs.

The same is true for half-day kindergarten. However, if a parent pays for before- or after-school programs for a child who is in half-day kindergarten, those expenses are eligible for the credit.

Taxpayers need to take these credits into consideration when they are placing their children, aged 13 or younger, in the care of others. The credits can be a real money saver.

Daniel Stoica Accounting Professional

The thought of a large refund will make anyone happy. But, as the saying goes, if it sounds too good to be true, it probably is, and there is usually a catch. The IRS makes a habit of looking for large refunds so they can be audited. If it turns out that your large refund was given to you as a result of your mistake, your large refund could become a large debt to the IRS.

There are some deductions and credit mistakes people make that can get them into trouble with the IRS when they file their taxes. Below is a list of some of the common areas where mistakes are commonly inadvertently made.

Child tax credit: This is the most common. In order to take this credit, the child must be related to you in one way or another, or you must be the child’s legal guardian. Also, you have to show proof that you cared for this child for at least six months out of the year you are filing.

Charitable Donations: When the IRS questions charitable donations, they are usually referring to large donations. If your donation was worth more than $500.00, you have to submit a receipt and a signed statement from the organization that proves your donation was made to an IRS qualified charity. If your charitable donation is deemed to be unqualified, you will owe the money you deducted for the charitable donation that resulted in the large refund.

Business Deductions: Many small businesses have a hard time figuring this one out. The IRS looks very closely at the differences between business expenses and personal expenses. Keep all of your receipts when you purchase anything for your business. You must also show the IRS proof that the expense was necessary for the running of your business. Computers and office equipment to keep your business running smoothly, especially if your business is growing, is considered a legitimate expense. Luxury items that do not enhance the growth of your business will not be accepted as a legitimate expense.

Travel expenses are tricky as well. You must submit your travel receipts when you are filing your taxes to prove that these expenses were made solely for business purposes.

These are only a few examples of credits and deductions that could send up a red flag with the IRS. It is very important to keep all of your receipts for everything you intend to take a deduction on or claim a credit for. If you have any doubts, talk to a tax professional. They will be able to figure out what you can and can’t claim, which will keep your refund from becoming a debt.

Daniel Stoica Accounting Professional

Tax Credits and Benefits for Disabled Taxpayers

These tax tips are of particular interest to people with disabilities and those who care for people with disabilities.

IRS Tax Tip 2011-24, February 03, 2011
Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits.

Here are seven tax credits and other benefits which are available if you or someone else listed on your federal tax return is disabled.

1. Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
2. Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
3. Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
4. Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
5. Medical Expenses If you itemize your deductions using Form 1040, Schedule A, you may be able to deduct medical expenses.See IRS Publication 502, Medical and Dental Expenses.
6. Earned Income Tax Credit EITC is available to disabled taxpayers as well as to the parents of a child with a disability.If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
7. Child or Dependent Care Credit Taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be entitled to claim this credit.There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

Top Ten Tax Benefits for Parents

Tax time is a great opportunity for parents to reflect on the many joys their children bring them.

Tax preparation time is an opportunity to calculate the financial benefits children bring to parents.

Tax credits, tax deductions, and lower tax rates are available to parents.

Here is IRS Tax Tip 2011-18, January 26, 2011

Did you know that your children may help you qualify for some tax benefits?

Here are 10 tax benefits the IRS wants parents to consider when filing their tax returns this year.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.
3. Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.  Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included.  For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
6. Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.
7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.
8. Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income.  For more information see IRS Publication 970, Tax Benefits for Education.
9. Student loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.
10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.