If there is something to look forward to with taxes, it's figuring out your tax credits. Tax credits can reduce the amount of taxes you owe, and in some cases, can help you get a refund.
Sounds great, right? But some people don't know to ask for tax credits, said Trish Brazil, a certified public accountant based in Sault Ste. Marie, Michigan.
"Most people that qualify for various tax credits are low-income individuals who are either not required to file tax returns or do not have knowledge of the benefits available," she said. "They simply do not understand the tax system or have the means to seek professional assistance."
Even those who are familiar with the tax code may not keep up with changes to the tax credits available, as they change from year to year. So we've created a list of new, modified and often-overlooked tax credits that you should be aware of.
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Tax credits can reduce the amount of taxes you owe, and in some cases, can help you get a refund.
Brienne Walsh, Writer
Estate Tax Credit
Now's the time to take advantage of the estate tax credit. In 2011, estates valued at under $5 million were exempt from taxes. Those over that threshold were subject to a 35 percent maximum rate. In 2012, the amount was adjusted to $5.12 million to accommodate inflation.
Fortunately for those with large estates, thanks to the American Taxpayer Relief Act of 2012 that passed on January 1, 2013, the exemption will not revert back to $1 million as expected, but rather will stay at $5 million. The tax rates applied to exceeding sums will increase from 35 percent to 40 percent in 2013.
Returning Heroes and Wounded Warriors Work Opportunity Tax Credit
This new tax credit applies to businesses hiring military veterans. Employers are eligible for a credit of up to $9,600 for each qualified veteran hired between Nov. 21, 2011, and Jan. 1, 2013. There's no set amount for the credit. It all depends on how long the veteran was unemployed, and whether or not he has a service-connected disability.
Retirement Savings Contribution Credit
The Retirement Savings Contribution Credit is rarely used because a lot of people don't know it exists, said Brenda Breth, a CPA based in Meadville, Pennsylvania. It's only for people who contribute to IRAs or 401(k) plans, but it can be worth up to $1,000. It ranges from 10 to 50 percent up to a maximum income level of $56,500.
Only a small percentage of families in the United States adopt each year, and the good news for them is they can get a maximum credit of $12,650.
The bad news?
"Beginning in 2013, it will be reduced to $6,000 for adoption of special needs children only," she said.
Earned Income Credit
The Earned Income Credit is for people who work, but have low to moderate wages. In fact, any employee with 2012 wages less than $45,060 -- $50,270 if married filing jointly -- may be eligible for an EIC.
Child Tax Credit
Once the 2012 presidential campaign ended, most of the news from Washington D.C., concerned the fiscal cliff. A ton of tax credits were set to expire on Jan. 1, 2013. Unless Congress acted before then, it was said, a lot of financial breaks people had grown used to would go right off that cliff.
One of the survivors was the Child Tax Credit, which provides a relief of upwards of $1,000 per eligible child to taxpayers claiming minors as dependents.
Child and Dependent Care Credit
This credit survived the fiscal cliff negotiations, too. It provides individuals who pay for day care expenses for children or the disabled with a federal tax credit of up to 35 percent of the cost. Eligible care expenses are limited to $3,000 for a single dependent, and $6,000 for two or more.
American Opportunity Credit
This credit was the centerpiece of the 2009 stimulus bill, and it too was still standing after the fiscal cliff deal. This education benefit credit covers you for up to $2,500 of qualified tuition and related expenses per year for up to four years. Up to $1,000 can be returned to you in your tax refund.