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| Issue:
806 Date: 02/02/2006 |
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Tax News
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Are You Eligible for Any of These Tax Credits?
Reviewed by: Brenda Procter, M.S., Consumer and Family
Economics
College of Human Environmental Sciences, University of
Missouri-Columbia
Taxpayers should consider claiming tax credits for which
they might be eligible when completing their federal
income tax returns, advises the IRS. A tax credit is a
dollar-for-dollar reduction of taxes owed. Some credits
are refundable - taxes could be reduced to the point
that a taxpayer would receive a refund rather than owing
any taxes. Below are some of the credits taxpayers could
be eligible to claim:
Earned Income Tax Credit
This is a refundable credit for low-income working
individuals and families. Income and family size
determine the amount of the EITC. When the EITC exceeds
the amount of taxes owed, it results in a tax refund to
those who claim and qualify for the credit. For more
information, see IRS Publication 596, "Earned Income
Credit (EIC)."
Child Tax Credit
This credit is for people who have a qualifying child.
The maximum amount of the credit is $1,000 for each
qualifying child. This credit can be claimed in addition
to the credit for child and dependent care expenses.
For more information on the Child Tax Credit, see
Publication 972, "Child Tax Credit."
Child and Dependent Care Credit
This is for expenses paid for the care of children under
age 13, or for a disabled spouse or dependent, to enable
the taxpayer to work. There is a limit to the amount of
qualifying expenses. The credit is a percentage of those
qualifying expenses. For more information, see
Publication 503, "Child and Dependent Care Expenses."
Credit for the Elderly and Disabled
This credit is available to individuals who are either
age 65 or older or are under age 65 and retired on
permanent and total disability, and who are U.S.
citizens or residents. There are income limitations. For
more information, see Publication 524, "Credit for the
Elderly and Disabled."
Education Credits
There are two credits available, the Hope Credit and the
Lifetime Learning Credit, for people who pay higher
education costs. The Hope Credit is for the payment of
the first two years of tuition and related expenses for
an eligible student for whom the taxpayer claims an
exemption on the tax return. The Lifetime Learning
Credit is available for all post-secondary education for
an unlimited number of years. A taxpayer cannot claim
both credits for the same student in one year. For more
information, see Publication 970, "Tax Benefits for
Education."
Retirement Savings Contribution Credit
Eligible individuals may be able to claim a credit for a
percentage of their qualified retirement savings
contributions, such as contributions to a traditional or
Roth IRA or salary reduction contributions to a SEP or
SIMPLE plan. To be eligible, you must be at least age 18
at the end of the year and not a student or an
individual for whom someone else claims a personal
exemption. Also, your adjusted gross income (AGI) must
be below a certain amount. For more information, see
chapter four in Publication 590, "Individual Retirement
Arrangements (IRAs)."
There are other credits available to eligible taxpayers.
Since many qualifications and limitations apply to the
various tax credits, taxpayers should carefully check
the instructions for Form 1040, the publications and
additional information on the IRS Web site at
www.irs.gov. IRS publications are available on the IRS
Web site under "Forms and Publications" or by calling
the toll free Forms and Publications telephone line at
1-800-TAX-FORM (1-800-829-3676) to place an order. |
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Avoid Headaches, Prepare Tax Return Early
Reviewed by: Brenda Procter, M.S., Consumer and Family
Economics
College of Human Environmental Sciences, University of
Missouri-Columbia
Earlier is better when it comes to working on your
taxes. The IRS encourages everyone to get a head start
on tax preparation. Not only do you avoid the
last-minute rush, early filers also get a faster refund.
There are seven easy ways to get a good jump on your
taxes long before the April 15 deadline rolls around:
1. Gather your records in advance. Make sure you have
all the records you need, including W-2s and 1099s. Don㦙
forget to save a copy for your files.
2. Get the right forms. They𠆫e available around the
clock on the IRS Web site,www.irs.gov, under Forms and
Publications.
3. Take your time. Don㦙 forget to leave room for a
coffee break when filling out your tax return. Rushing
can mean making a mistake and that can be expensive!
4. Double-check your math and Social Security number.
These are among the most common errors on tax returns.
Taking care on these reduces your chances of hearing
from the IRS.
5. Get the fastest refund. When you file early, you get
your refund faster. Using e-filing with direct deposit
might get you a refund in as little as 10 to 15 days.
6. E-filing is easy. E-filing catches math problems,
provides confirmation your return has been received and
gives you a faster refund.
7. Don㦙 panic. If you have a problem or a question,
remember the IRS is there to help. Try the IRS Web site
at www.irs.gov. Or call the toll-free customer service
number at 1-800-829-1040.
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Should You Itemize?
Reviewed by: Brenda Procter, M.S., Consumer and Family
Economics
College of Human Environmental Sciences, University of
Missouri-Columbia
Whether to itemize deductions on your tax return depends
on how much you spent on certain expenses last year.
According to the IRS, money paid for medical care,
mortgage interest, taxes, contributions, casualty
losses, and miscellaneous deductions can reduce your
taxes. If the total amount spent on those categories is
more than the standard deduction, you can usually
benefit by itemizing.
For tax year 2004 and 2005 itemized returns, you have a
choice of claiming a state and local tax deduction for
either sales or income taxes. The IRS will provide
optional tables for use in determining the deduction
amount, relieving taxpayers of the need to save receipts
throughout the year. Sales taxes paid on motor vehicles
and boats may be added to the table amount, but only up
to the amount paid at the general sales tax rate. Check
a box on Schedule A, Itemized Deductions, to indicate
whether your deduction is for sales or income taxes.
The standard deduction amounts are based on your filing
status and are subject to inflation adjustments each
year. For 2005, they are:
Single: $5,000
Married Filing Jointly: $10,000
Head of Household: $7,300
Married Filing Separately: $5,000
The standard deduction amount is more for taxpayers age
65 or older and for those who are blind. It is generally
less for those who can be claimed as a dependent on some
other taxpayers' return.
Your itemized deductions may be limited if your adjusted
gross income is more than $145,950, or $72,975 for
Married Filing Separately. This limit applies to all
itemized deductions except medical and dental expenses,
casualty and theft losses, gambling losses, and
investment interest.
When a married couple files separate returns and one
spouse itemizes deductions, the other spouse must also
itemize and cannot claim the standard deduction.
There are some taxpayers who are not eligible for the
standard deduction. They include nonresident aliens,
dual-status aliens, and individuals who file returns for
periods of less than 12 months.
For more details on itemized deductions, see the
instructions for Schedule A, Form 1040, or Publication
17, Your Federal Income Tax. You may download
publications and forms from the IRS Web site at
www.irs.gov or you may order them by calling toll free
1-800-TAX-FORM (1-800-829-3676).
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