The most widely used tax credits are the Earned Income Tax Credit (EITC or EIC) and the Child and Dependent Care Credit. These credits reduce your total taxable income so that you pay less in taxes.
Earned Income Tax Credit
Low-income families can save considerably by claiming the EITC. To quality for this credit for tax year 2014, you should have a Social Security Number and income below the following thresholds:
- $14,590 with no qualifying children. ($20,020 married filing jointly)
- $38,511 with one qualifying child ($43,941 married filing jointly)
- $43,756 with two qualifying children ($49,186 married filing jointly)
- $46,997 with three or more qualifying children ($52,427 married filing jointly)
Even if you owe no taxes, you can still claim this tax credit and receive a refund.
Child and Dependent Care Credit
You can claim this credit if you paid someone to care for your child/children, dependent or spouse while you were working or looking for work. If you are claiming a child/children, they must be under 13 years old. Your spouse or dependent must have lived with you for more than 6 months and must be physically incapable of caring for themselves.
The Child and Dependent Care Credit is worth between 20 and 35% of your allowable expenses. You can claim a maximum of $3,000 for the care of one qualifying person. For two or more people, the maximum limit is $6,000.
Credit for the Elderly or the Disabled
Those aged 65 or above, or retired permanently due to a total disability, can reduce their taxes between $3,750 and $7,500 by claiming this tax credit. The credit can only be claimed if you file Form 1040 or Form 1040A. This credit cannot be taken if you file Form 1040EZ or Form 1040NR.
Home Office Deduction
If you use a part of your home exclusively for business purposes, you may be eligible for the home office deduction. You can deduct mortgage interest, insurance, depreciation for the office area, repairs, etc. It is essential that the area you claim is used solely for business.