Tax credits you might have missed


POSTED: Sunday, February 22, 2009

Tax credits are an effective way to reduce your income tax liability.

As you prepare your income tax returns, below are some commonly missed credits that apply to the 2008 tax year.

» Taxpayers can receive a Child Tax Credit of $1,000 (through 2010) per qualifying child. A qualifying child consists of a son, daughter, stepchild, foster child, brother, sister, step brother/sister, or dependent of any of them.

There are a few requirements, such as they must be under the age of 17, or they can be any age if they are permanently or totally disabled; you must have provided more than half their support for the year; they must live with you more than half the year; and they must be a U.S. citizen, U.S. national, or U.S. resident alien.

Adopted children are treated as your own children for the child tax credit.

Be aware, however, that if your income is above a certain amount, you will not be eligible for this credit. If you are married filing jointly, this amount is $110,000 and above. If you are single, head of household or qualifying widow(er), it is $75,000 and above. If you are married filing separately, it is $55,000 and above.

» The Hope Credit and Lifetime Learning Credit are available to eligible students based on the amount of qualified tuition and related expenses paid to accredited schools or other recognized post-high school credential and certain vocational schools.

Qualified tuition expenses do not include room and board, student health fees or transportation. Any scholarships or Pell grants used to pay for tuition will decrease the amount of qualifying expenses.

For 2008, the maximum HOPE credit is $1,800 per student for the first two years of undergraduate education.

The maximum Lifetime Learning credit is $2,000 per year per taxpayer for any post-high school education (including graduate-level course and courses to acquire or improve job skills) at an eligible educational institution.

Both the HOPE and Lifetime Learning credits are reduced if modified adjusted gross income is above $96,000 in 2008; it is unavailable totally if it's more than $116,000 for married taxpayers filing a joint return.

For unmarried filers the phase-out range is $48,000 to $58,000. These credits are not available to married taxpayers filing separate returns.

» The Earned Income Credit is a refundable credit given to certain low-income taxpayers that can help reduce taxes and sometimes result in a refund.

To claim the credit you must:

• Meet certain adjusted gross income thresholds;

• Be a U.S. citizen or resident alien all year and have a valid Social Security number.

• File as “;married filing joint,”; if you are married.

• Have at least one qualified child who lives with you. If you do not have a qualifying child, you must meet other qualifying conditions.

• Not be a qualified child of another taxpayer.

• Not claim the foreign earned income or housing exclusion.

• Have less than $2,950 in investment income (interest, dividends, capital gains, etc).

The maximum 2008 credit for a person with two or more qualifying children is $4,824; with one qualifying child $2,917; and with no qualifying children $438.

As you work on your tax returns this year, don't forget to consider credits.


Mari Ishii is a tax manager in the Honolulu office of Grant Thornton LLP. She can be reached at .(JavaScript must be enabled to view this email address).