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7 Tax Credits and Deductions You Need to Know (US)

7 Tax Credits and Deductions You Need to Know (US)

It’s tax season again, and there are some great new tax credits that have been implemented through the American Taxpayer Relief Act (ATRA).

It is important that Americans are aware of the various credits and deductions available under this act, as it can make a big difference on your tax return. Below is a list of tax credits that can potentially help you to save money on your 2012 tax bill. For a full list, you can visit the IRS website.

Child Tax Credit: Parents with children under the age of 17 (before Dec 31, 2012) may be eligible for a tax credit of $1,000 for each qualifying dependent child. The credit begins to phase out for single filers whose income is above $75,000, and joint-filers whose income is above $110,000. The credit is reduced by $50 for every $1,000 a taxpayer is above the limit. (Eg: a single taxpayer with an income of $77,000 will have their credit reduced to $900)

Child and Dependent Care Credit: Filers who have an eligible child under the age of 13 (before Dec 31, 2012), or a dependent that required care, may qualify for a tax credit of up to $3,000, or $6,000 for two or more qualifying dependents. This credit was designed for parents/spouses to work or look for work while their dependents are taken care of by outsourced help.

Adoption Credit: Families who have adopted a child in 2012, and paid out-of-pocket for the expenses may be eligible for a tax credit up to $12,970. The credit begins to phase out as filers income increases to over $194,580, and becomes extinct for filers whose income is greater than $234,580. The amount of credit available is also dependent on the expenses accumulated over the 2012 year.

American Opportunity Tax Credit: Also know as the “Hope Scholarship Credit”, the AOTC offers a $2,500 credit per eligible college student for qualifying tuition, fees, and course material expenses. Phaseouts apply for filers whose income is greater than $80,000, or joint-filers with an income greater than $160,000. The credit can also be claimed by individual students if they are not claimed as dependents.

Mortgage Interest Deduction: Any mortgage interest payments made during the 2012 calender year may be deductible. Homeowners have the opportunity to deduct up to $1,000,000 in home acquisition debt, and up to $100,000 of a home equity line of credit. The Mortgage Debt Forgiveness Act is another mortgage credit that allows for your qualified debt income of up to $2,000,000 to be excluded from your total income. This credit is for filers who have had a mortgage debt forgiven as a result of a foreclosure, short sale, or mortgage adjustment in 2012.

Residential Energy Efficient Property Credit: This credit gives homeowners an opportunity to receive up to 30% of their costs for all eligible energy efficient home improvements, including the addition of insulation, energy efficient exterior windows, or heating systems. It is important to note that this $500 credit can only be used one time.

Health Savings Accounts: Filers are able to deduct contributions from the 2012 gross income for contributions to their Health Savings Account (HSA) until April 15, 2013. The credits are limited to single filers for $3,100 and $6,250 for joint-filers. Taxpayers 55 and older are able to increase these amounts to $4,100 and $6,250 respectively.

Please Note * It is strongly recommended that you engage your own tax advisor/accountant to review the above-noted tax credits and deductions before strategically engaging in the implementation of any of them.

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