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Five Credits That Can Reduce Your Taxes

The IRS is recommending that taxpayers consider these credits before filing their returns.

The Internal Revenue Service is recommending that taxpayers look into five credits that can reduce their taxes this season.

Tax credits reduce the amount of taxes a resident must pay and a refundable credit not only reduces the federal tax, but also could result in a refund, IRS Spokeswoman Dianne Besunder said.

Here are five tax credits the IRS is suggesting for consideration before filing 2012 federal income tax returns.

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1. The Earned Income Tax Credit – This refundable credit is for people who work and don’t earn a lot of money. The maximum credit for 2012 returns is $5,891 for workers with three or more children. Eligibility is determined based on earnings, filing status and eligible children. Workers without children could receive a smaller credit.

2. The Child and Dependent Care Credit – This credit is for expenses paid for the care of qualifying children under age 13 or for a disabled spouse or dependent. The care must enable the taxpayer to work or look for work.

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3. The Child Tax Credit – This may apply to taxpayers with a qualifying child under 17 years of age. It can help to reduce the federal income tax by up to $1,000 for each qualifying child claimed on a return. To claim the credit, a taxpayer may be required to file the new Schedule 8812, Child Tax Credit, with their return.

4. The Retirement Savings Contribution Credit – This credit helps low- to moderate-income workers save for retirement. Taxpayers may qualify if their income is below a certain limit and they contribute to an IRA or retirement plan at work. The credit is in addition to any other tax savings that apply to retirement plans.

5. The American Opportunity Tax Credit – This helps offset some of the costs paid for higher education. The credit applies to the first four years of post-secondary education. The maximum credit is $2,500 per eligible student. A total 40 percent of the credit, or up to $1,000, is refundable. For those qualified to claim it, they must file Form 8863, Education Credits.

For more information on these five tax credits, visit the IRS’s website.


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