My column this week deals with a the IRS’ new initiative to get everyone to fill electronically for free. In it, I question if free e-file really reduces the cost of filing for some taxpayers, with software makers upping the price for some versions.

At the end of the column I threw in two pieces of advice: To pay down debt or save your refund if you lack sufficient emergency savings (I have a  feeling that’s what most people are going to do with or without my nudging). I also said that if your income was lower this year due to a pay cut or lay off, you may qualify for some tax breaks that you were phased out of before or may find a tax credit is much more valuable this year because you made less money.

As promised, here are a few tax credits and deductions worth taking a second look. Since the tax code is now 7,453,234-gazillion pages, I surely won’t list them all here. So talk to a tax preparer or check out whether you qualify for free tax assistance at a VITA site.
From IRS.gov

The Recovery Rebate Credit: This credit is figured like last year’s Economic Stimulus Payment except that Recovery Rebate Credit amounts are based on tax year 2008 instead of 2007. Most people already received their full benefit in the form of the Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, for example, he or she did not get an Economic Stimulus Payment, had a child in 2008 or had a change in income level. If you receive this credit, it will be included in your refund and will not be issued as a separate payment.

The Earned Income Tax Credit (EITC) helps people who work but do not earn a lot. Working families with incomes below $41,646 and childless workers with incomes under $15,880 often qualify. Generally, you must have earned income as an employee, independent contractor, farmer or business owner to qualify. Taxpayers under the minimum retirement age who receive disability payments from an employer plan may also be eligible. The EITC Assistant, available in mid-January, can help you see if you qualify.

Child Tax Credit: A taxpayer who has a dependent child under age 17 probably qualifies for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2008 returns. The child tax credit is not the same as the child care credit. Details on figuring and claiming the child tax credit can be found in IRS Publication 972 (PDF format).

Education credits: The Hope credit, lifetime learning credit, and tuition and fees deduction help parents and students pay for post-secondary education. (You may qualify for student loan interest deduction if your income has dropped too).

Saver’s credit: The saver’s credit is designed to help low- and moderate-income workers save for retirement by matching up to $2,000 of your IRA or 401(k) contributions. The saver’s credit can be claimed by:

* Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009;
* Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009; and
* Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.

That reminds me that you should also look and see if you can qualify for a Roth IRA.

Moving expenses, job search expenses and health care expenses may also be tax deductible which is why I’m with the experts that suggest meeting with a tax preparer in years when you have a lot of life changes. Or prepare to research and spend a lot of time with your tax software, if you’re a little dorky like me.

This entry was posted on Saturday, January 24th, 2009 at 6:00 am and is filed under taxes. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.