It’s startling how “normal” it is for us that amidst the biggest periods of growth for numerous industries and technologies, even agricultural production, we simultaneously see the cost of living almost double from what it was merely twenty years ago. You should ask yourself just why that is. At any rate, there are many tax credits and deductions available to tax filers every year. Some credits and deductions only last a few years while others stay around a decade or more while seeing year-to-year tweaks in their rules.

A tax credit will specifically reduce the amount of money you owe to the IRS dollar for dollar.

A tax deduction will reduce your taxable income thus enabling you to widdle down your tax filer status on the income tax brackets totem pole down into a slimmer category so that your money is taxed at a lower tax rate than it really should be. Tax deductions are the reason secretaries pay higher tax rates than congressman and senators.

It’s true that higher up on the social ladder you are the more likely it is that you’ll have means with which to reduce the amount of federal taxes you’d otherwise pay.

The thing with tax credits and deductions is that every year people seem to overlook them. Here’s a look at the most common tax credits.

The Child Tax Credit

The Child Tax Credit is one of the most relied on credits every year. It’s been extended until 2012 and allows you to claim a credit worth up to $1,000 for each qualifying child that you can claim as a dependent. A qualifying child:

Must be 16 years old or younger
Is Your daughter, son, step child, foster child, brother, sister, step sibling, niece, nephew, grandchild, adopted child, or the child of any of the mentioned people
Cannot provide more than 50% of their own material support
Must be a legal dependent of the tax payer
Must be a U.S. citizen, national, or residential alien
Must have lived with the tax filer for over half of the tax year

Aside from those basic parameters there is a phase-out for those making a certain amount each year.

The Earned Income Credit

The Earned Income Credit is another doozy of the tax world. The IRS tries to remind everyone about it every year and still some people fail to claim what’s there’s. It’s another one for the family and those families in particular who work with moderate incomes. People have varying attitudes about accepting financial help to offset their situations but the truth is that it’s your money anyways. All tax filers should check their eligibility for the EIC because overlooking a bonus that might be yours for the taking isn’t very smart.

You must be 25 or older but younger than 65
You cannot file married filing separately
You cannot have investment income over $3,150

If you made $43,998 ($49,078 married filing jointly) and have three or more qualifying children then you can get up to a $5,751 credit
If you made $40,964 ($46,044 married filing jointly) and have two qualifying children then you can get up to a $5,112 credit
If you made $36,052 ($41,132 married filing jointly) and have one qualifying child then you can get up to a $3,094 credit
If you made $13,660 ($18,740 married filing jointly) and no qualifying child then you can get up to a $464 credit
Many people make the mistake of thinking self employed people don’t qualify, but they do! Don’t join the ranks of those think they probably don’t qualify, do a quick check.

 The American Opportunity Tax Credit

The American Opportunity Tax Credit is one that you shouldn’t miss out on while it’s still around. It was extended to run through 2012 but might not be around after that. You can claim the credit if you’re still in your first four years of college. Each qualifying student can get up to a $2,500 tax credit and up to $1,000 is refundable meaning if you owe zero dollars in taxes when all is said and done then you’ll actually receive some money from the credit.

The eligible student can be you, your spouse, or a qualifying dependent. You cannot file for the American opportunity tax credit if your status is married filing separately. Your modified adjusted gross income must be less than $90,000 ($180,000 married filing jointly). The credit can only be claimed for legitimate college expenses like tuition and things like books that are required for study.

Study must take place at a college, university, vocational or post-secondary educational institution.

 Energy Tax Credits

Energy Tax Credits are still out there for those who made the leap to energy efficient appliances. In the beginning of that tax program there were more available than there are now. For 2011 you could get a credit worth 10% of the cost of: HVAC (air conditioning and furnaces), Windows and Doors, Roofs, Water Heaters, Insulation, and Biomass stoves. (just remember to add the words “energy-efficient” in front of those things however).  The appliances need to be energy star approved for them to qualify for an energy tax credit.

All of those credits disappear in 2012 and the new roster is set to include bigger items. Such as:

Geothermal heat pumps (for both principal and secondary homes)
Solar energy systems (for both principal and secondary homes)
Small wind turbines (for both principal and secondary homes)
Fuel cells (an upper limit of $500 for principal homes only)

The credit can be worth up to 30% of the cost of  and there is no upper limit besides the noted fuel cells. These energy tax credits expire in December 2016.

 The Mileage Tax Deduction

The Mileage Tax Deduction is a credit made for the 21st century. The amount of road travel we engage in for the most common aspects of our life is either wonderful or absurd depending on how you view things. The United States is among the 25 countries with the world’s cheapest gas rates so just remember that the next time you complain about the pumps. Don’t get me wrong, I think we deserve better than what they’re been for the last couple of years but don’t listen to crazies who tell you it’s the presidents fault. You get the choice of claiming the actual vehicle expenses deduction or taking the mileage rate. Obviously you want the one that affords you the biggest advantage.

The actual expense deduction includes: gas, oil, tires, repairs and maintenance, and insurance and registration.

Then the mileage rates are broken up into a rate for the first half of the year and another rate for the second half. Then there are three categories.
From January 1st to June 30th the business rate is 51 cents per mile
For this period the medical rate is 19 cents per mile
The charitable rate is 14 cents per mile

From July 1st to December 31st the business rate is 55.5 cents per mile
For this period the medical rate is 23.5 cents per mile
The charitable rate remains 14 cents per mile

Naturally this deduction can only be claimed on an itemized tax return all you will need to furnish physical proof of the miles and their purposes to the appeasement of the IRS.

 Medical Expense Tax Deduction

You can also take the Medical Expense Tax Deduction if you file an itemized tax return and your medical expenses equal at least 7.5% of your adjusted gross income. While this may include things like contact lenses it cannot include anything that’s cosmetic or otherwise elective. That means breast implants do not count. This is a highly complex area of income tax filing and it’s best you do the research on medical expense deductions as it will take a fair amount of time to gain clarity on what you can and can’t do in your situation. The IRS defines a medical expense as “an expenses paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body”.
7.5% of your total adjusted gross income isn’t as impossible as it sounds so don’t despair before you even make an attempt.