Overlooked Credits

Overlooked Credits

Adoption Credit

If you adopted a child, you may be able to take a credit for qualified adoption expenses of up to $10,930 per child. If you adopted a special needs child, you may claim a credit of $10,930 regardless of your expenses. The credit is phased out if your adjusted gross income is over $164,410.

Child and Dependent Care Credit

If you were working and had dependent care expenses for a dependent child under age 13 or for a dependent or spouse who is disabled, you may be able to claim a credit for these expenses. This nonrefundable credit is calculated based on your dependent care expenses and your income. The maximum credit is $1,050 for the expenses for one qualifying child or $2,100 for more than one child.

Child Tax Credit

You may qualify for a credit of up to $1,000 per qualifying child. A qualifying child is an individual who is under age 17 at the end of the year, is claimed as a dependent, and meets the definition of a child under the Uniform Definition of a Child as a son, daughter, stepchild, adopted child, grandchild or eligible foster child.

The Additional Child Tax Credit

You may receive less than the full amount of the Child Tax Credit because this credit is limited to your available tax liability. In certain cases, you may be entitled to an additional credit in excess of your tax liability. The additional child tax credit is available to taxpayers with an income greater than $11,300, and is a refundable credit.

Earned Income Credit

The Earned Income Credit is a refundable credit for low-income workers with earned income. The credit is available for taxpayers with or without children. You could be entitled to a refundable credit of up to $2,747 (if you have one qualifying child), $4,536 (if you have more than one qualifying child), or $412 (if you have no qualifying children or no children at all).

You have earned income if you work for someone else or if you are self-employed. Taxable earned income includes wages, salaries, tips, union strike benefits, long-term disability benefits received prior to minimum retirement age, and net earnings from self-employment. For tax years through 2007, you may elect to include nontaxable combat pay in earned income for the Earned Income Credit purposes. The ability to decide whether to include the combat pay enables you to choose the largest possible Earned Income Credit.

If you qualify for the Earned Income Credit, it reduces the tax you owe. The credit is refundable if your withholdings and Earned Income Credit amount are greater than the tax liability you may have on your tax return.

Hope and Lifetime Learning Credits

There are two nonrefundable tax credits available for qualified tuition and related expenses for post-secondary education. You may be able to claim a Hope Credit of up to $1,650 for each eligible student. The Hope credit is available for the first two years of qualified post-secondary education. You may be able to claim a Lifetime Learning Credit of up to $2,000 for the family. The Lifetime Learning credit is available every year you, your spouse, or a dependent pays for any qualified education expenses.

Retirement Savings Contributions Credit

If you contribute to an IRA or an employer-provided retirement account, such as a 401(k), you may be eligible for a credit. The credit is based on up to $2,000 of your contribution for the year. You must be age 18 or older to claim the credit and you cannot be a student or claimed as a dependent on another's return. The credit is in addition to any deduction or exclusion from income for the contribution.

Credit for Excess Social Security Tax or Railroad Retirement Tax (RRTA) Withheld

The maximum Social Security taxes or RRTA tier 1 an individual must pay in 2006 is $5,840. If you worked for one employer and paid more than $5,840, you must contact your employer for a refund of the overpayment. If you worked for more than one employer and the combined total of your Social Security taxes or RRTA is greater than the maximum amount, you may claim the excess taxes paid as a refundable credit on your tax return.

Foreign Tax Credit

If your Form 1099-INT or Form 1099-DIV shows you paid foreign taxes, you may be eligible to claim either a credit or an itemized deduction for these taxes. Generally, the foreign tax credit results in a greater tax savings than deducting the foreign taxes as an itemized deduction.

Residential Energy Credits

There are two new nonrefundable credits available for taxpayers who make their personal residences more energy efficient. For both residential credits, the home must be your principal residence, must be located in the U.S., and the property or improvements must have a reasonable life expectancy of at least five years. The new energy credits are both nonrefundable credits available for new improvements placed in service during tax years 2006 through 2007.

Non-business Energy Property Credits

The Energy Property Credit is a $500 maximum nonrefundable credit. The combined credit over three years for all components is $500. Unused credit in any year cannot be carried forward and is lost. This credit may be used to offset any alternative minimum tax (AMT) liability. The credit is based on 10% of the cost of installing:

Windows, exterior doors, metal roofs, and new insulation. The credit for windows is limited to $200.
Main circulating fans ((limited to $50)
Qualified hot water heaters (limited to $150)
Central air conditioning or furnaces (limited to $300)

Residential Energy Efficient Property Credits

The residential energy efficient property credits are available each year in full, may not be carried over, and may not offset the AMT. These credits are available on the installation of:

Solar water heating system, limited to 30% of the cost ($2,000 maximum credit). This is not available for spa or pool water heating systems
Solar energy production system, limited to 30% of the cost ($2,000 maximum credit)
Qualified fuel cell power plant, limited to 30% of the cost ($500 maximum credit for each 0.5 kilowatt of capacity)

Alternative Motor Vehicle Credit

The Alternative Motor Vehicle Credit includes nonrefundable credits for certain new vehicles you purchased for your own used after December 31,2005. The vehicle must be made by a manufacturer. Passenger automobiles and light trucks are covered in this section. The credit is not available as an offset for the AMT.

When determining the tax credit, specific rules and maximums apply to each vehicle type:

Hybrid and advance lean-burn - $3,400. Click here for a complete list of the available hybrids and their available credits
Fuel cell - $12,000 for tax-years 2006 through 2009
Alternative fuel - $4,000. As of July 2006, the following vehicles have been certified by the IRS as Qualified Alternative Fuel Motor Vehicles (QAFMV) for the credit in the following amounts:
- Honda Civic GX Model Year 2005 - $4,000
- Honda Civic GX Model Year 2006 - $4,000
- Honda Civic GX Model Year 2007 - $4,000

The car dealership where you purchased your car can provide you with the certification of the amount of credit available on the car when you purchase the vehicle.