Tax deductions, whether itemized or above-the-line, and tax credits can save you money, but they do so in different ways.
A deduction lowers the amount of your income on which tax is figured. Less income generally means a lower tax bill.
A credit, however, is an even better tax reduction tool. Credits are claimed once you figure your tax liability and they then reduce what you owe Uncle Sam dollar for dollar. That means a $1,000 tax credit could cut your $2,000 tax bill in half.
Even better, a few tax credits are refundable. As the name indicates, these credits will get you a refund if the credit amount is larger than your tax bill. So that $1,000 credit in a refundable form means that your $750 tax bill is wiped out and the Internal Revenue Service sends you the excess $250 as a refund.
Of course, credit claims typically involve more tax paperwork and have their own eligibility requirements. Still, it's probably worth the time and effort to see if you qualify.
Here are 12 tax credits -- actually, there are more than a dozen since several of the tax categories listed below contain multiple tax credits -- that could really pay off as you finish up your taxes.
1. Child tax credits
Yes, the plural "credits" is correct. Although I'm counting this as one tax credit, there are two connected to having children.
The Child Tax Credit is worth $1,000 for each qualifying kid. That's basically a dependent youngster younger than 17. The Form 1040 and 1040A instructions have a worksheet and details on qualifying for this tax break.
Then there's the Additional Child Tax Credit, which could help some filers who get less than the full amount of the child tax credit. The added bonus of the additional child tax credit is that it is refundable. It's claimed on part II of Form 8812 and you can find details in that form's instructions.
2. Adoption Credit
If the kids for whom you are claiming the child and additional child tax credits became part of your family through adoption, there's a separate credit to help with those costs. The credit is worth on your 2014 taxes up to $13,190 per adopted child. The tax credit is reduced, however, if your modified adjusted gross income falls between $197,880 and $237,880 and you can't claim it if your earnings exceed the top of the income phase-out range.
3. Child and Dependent Care Credit
This credit helps cover the cost of caring for kids younger than 13 or for a disabled spouse or dependent. The key to claiming this credit is that the care is necessary so that you and, if you're married, your spouse can go to work. It's claimed on Form 2441.
4. Education tax credits
Then there's the cost of educating all those kiddos. But don't despair. Tax credits are available to help those facing higher education costs here. In this case, there are two popular education tax credits.
The American Opportunity Tax Credit is worth up to $2,500 per student for four academic years. Even better, up to $1,000 of the credit is refundable to lower income taxpayers.
The Lifetime Learning Credit could get eligible filers up to $2,000. Even better, it's not limited to some undergraduate classes. It can be claimed for all qualifying post-secondary education tuition for an unlimited number of years, including courses to acquire or improve job skills. A degree or certification is not required.
Education tax credits are claimed on Form 8863. But don't try to double dip. You can't claim both credits for the same student in one tax year.
5. Earned Income Tax Credit (EITC)
The EITC is available to low and moderate income workers. While larger families get more help here -- up to $6,143 for the 2014 tax year -- a single taxpayer with no kids also might qualify for up to $496 this filing season. You have to have, as the name says, earned income; that means money from a job.
The EITC can get complicated if you have a large family, but it's usually worth the trouble. It is a refundable tax credit.
6. Retirement Saver's Tax Credit
Did you contribute to a Roth or traditional IRA last year (you still can do that up to the filing deadline) or put money into a workplace retirement plan? If so, check into the Retirement Saver's tax credit. There are income limits, but if you qualify then you might be able to get a $1,000 tax credit. For details and to claim this credit, check out Form 8880.
7. Credit for the Elderly and Disabled
Older taxpayers, that's age 65 or older under the IRS rules, or those who retired younger but have a permanent and total disability, might qualify for this tax credit. This credit ranges between $3,750 and $7,500. Details on specific qualifying criteria are in IRS Publication 524.
8. Premium Tax Credit
This new tax credit was created as part of the Affordable Care Act, which we know as Obamacare, to help folks meet the requirement that they have a minimum amount of medical coverage. The Premium Tax Credit is available to folks who purchased that health insurance from the federal (pending a Supreme Court decision otherwise) or state exchanges, known as the marketplace.
Many policy purchasers got this refundable credit in advance, but they will need to make sure that amount was correct when they file their returns. There's a slew of new Obamacare related tax forms, including the 1095-A, which you'll need to deal with premium tax credit reconciliation or claim issues on Form 8962.
9. Foreign Tax Credit
Did you make money in another country, either through a job or investment earnings? If so, you likely paid taxes to that foreign country on those earnings. While Uncle Sam operates on a worldwide taxation system, meaning he doesn't care where you get your cash, he wants his cut, he does offer you a way to avoid double taxes on the foreign earnings. You can claim the Foreign Tax Credit against the money on which you paid another government taxes. Form 1116, which is what you'll file, has details.
10. Excess Social Security & RRTA Tax Withheld Credit
If you had multiple jobs during the year, it's possible you overpaid Social Security taxes. Employers withhold Social Security and Medicare taxes along with income taxes, but there is a limit on the amount of money that subject to the Social Security portion.
For 2014, that earnings cap was $117,000; it's $118,500 for the 2015 tax year. If you have one job, once your income hits the cap, your boss stops withholding the Social Security payroll tax. But if you changed jobs and both were well paying, your combined income might have exceeded the cap. File Form 843 to get back that overpaid tax amount.
The credit also applies, as its name says, Railroad Retirement Tax Act or RRTA over payments.
11. Plug-in Electric Drive Vehicle Credit
Gas prices have dropped again and there's no longer much urgency among drivers to find alternative transportation options. Still, the tax code offers folks who are electric auto fans a way to save on their taxes.
You may be eligible for a tax credit if you purchased a qualifying car or truck that runs on an electric battery. This credit ranges between $2,500 and $7,500, depending on the capacity of the battery. The credit phases out per vehicle manufacturer based on sales totals. Details are in Form 8936 and accompanying instructions. And if you're shopping around, the IRS maintains a list of vehicles that qualify for this tax credit.
12. Residential energy credits
Finally, we have one last category that covers multiple tax credits, this time connected to your home's energy efficiency.
The Nonbusiness Energy Property Credit provides a tax credit of 10 percent of the cost of certain energy-efficient improvements to your main home. These include such relatively easy upgrades such as adding insulation, installing energy-efficient exterior windows and doors and putting a new roof on your house. The credit amount varies depending on the type of energy upgrade and the overall maximum credit is $500. If you claimed that amount in previous years, you're no longer eligible. Also, the 2014 tax year is the last one for which this credit is available unless Congress extends it yet again.
A second home energy credit, the Residential Energy Efficient Property Credit, provides a credit of 30 percent of the cost of adding to your home more expensive, and energy-efficient, systems. These include solar electric systems, solar water heaters, fuel cell systems, small wind energy systems, and geothermal heat pumps. This credit is available for property placed in service through Dec. 31, 2016.