We started a list yesterday of tax breaks. Here is a laundry list of CREDITS extended through 2012. A *deduction* (tax break) reduces your taxable income, and thus reduces your tax. A *credit* is real money with which to pay your tax. Some credits are *refundable* meaning money in the bank…the credit pays your tax and whatever is left over, you get. Other credits are *nonrefundable* meaning the credit pays your tax but only to zero – there is no leftover. With most credits, higher income taxpayers get a limited credit or no credit at all. As you peruse this list, think about what you might be eligible for and then get some guidance from us or your tax pro (read that: we will feel your pain if you do not qualify and some of the income limitations are quite low) .
THE AMERICAN OPPORTUNITY CREDIT – back for another year. This is an Obama era credit and it is a*refundable* credit up to $2,500 for your first four years of undergraduate education (or those of your dependents). Be careful here – sometimes your dependent college students work a job and know that they are getting a refund. So – they file a tax return early in the year and claim an exemption for themselves. They get the refund of perhaps a few hundred dollars. But, you lose the dependent exemption AND potentially the very nice American Opportunity Credit. Coordinate efforts now! And even if this happens, all may not be lost, because you can file an amended return. Ask us first about whether or not that makes sense for your specific situation – no one-size fits all.
THE CHILD TAX CREDIT – scheduled to drop to $500/year at the end of 2010, Congress renewed the chunkier $1,000 credit through 2012. This is *partially refundable* and applies to children under age 17. The YEAR your child turns 17…that is the end for the credit. No sliding scale. “Lucky me” – my daughter turned 17 the FIRST year that this credit was available…I didn’t get it. And I’m still trying to figure out how to write off her horses legally, of course!
THE EARNED INCOME CREDIT FOR THREE DEPENDENTS – provides a tad more help for low income working families with more than two children. Through 2012, the earned income credit, which is *refundable* is calculated at higher rates and for three children. It reverts to two children in 2013. There must be earned income and there is no longer an advanced earned income credit available from your employer.
THE ADOPTION TAX CREDIT – higher credit amounts (up to $10K –with additional $1K for 2011 only) apply to the years 2011 and 2012, but this one is tricky. For 2011, the credit is *refundable.* For 2012, even though the credit amounts remain at the higher level, the credit is *nonrefundable.* The Adoption Tax Credit may also allow you to exclude employer-provided assistance from you income.
THE DEPENDENT AND CHILD CARE TAX CREDIT – this pre-2011 tax credit maxed at $2,400 for one child and $4,800 for two or more children. Now, for 2011 and 2012, you can claim a credit of $3,000 for one child and $6,000 for two or more for their daycare. This credit is *nonrefundable* and each parent must be employed, disabled or a full time student to qualify to take the credit. Kindergarten fees don’t count but before/after school care, as well as some summer programs do count as child care. And remember that “dependent” does not necessarily mean a child. It could be eldercare for your aging and dependent parent.
EMPLOYER-PROVIDED CHILD CARE – If you are an employer who provides child care facilities for your employees, you may be eligible for a tax credit. And it can be chunky—up to $150K. Qualified costs include costs paid to acquire/construct/rehab a property that will be used as a child care facility, and/or for costs of training and compensating employees. Contact us or your tax pro for assistance.