Tax Credit FAQs

FAQs for Filing Returns
FAQs on Record-Keeping
Tax Credit FAQs
Tax Deductions FAQs

Q Do I qualify to take the child and dependent care credit?

You may qualify for the credit if you paid someone to care for your dependent who is under the age of 13 or a disabled dependent or spouse in order to allow you to work or look for work. IRS Publication 503, Child and Dependent Care Expenses, can address any questions you might have.

Q Can I take the earned income credit?

The qualifications for this credit are based on the income earned combined with the number of dependents you have. If you are single and no children lived with you and you earned less than $12,590, one child lived with you and you made less than $33,241, or more than one child lived with you and you made less than $37,783, you may qualify. Other rules apply as well. See IRS Publication 596, Earned Income Credit, for more information.

Q Are tax credits still available to people who buy diesel-powered
cars and vans?

The program has now ended and the IRS no longer offers a credit for people who buy cars, vans or light trucks that operate on diesel fuel rather than gasoline. For vehicles purchased after Aug. 20, 1996, the tax credit for purchasers of diesel-powered cars, vans and light trucks is repealed.

Q Does my filing status affect tax deductions, credits and rates?

Your filing status is an important factor in determining whether you are required to file, the amount of your standard deduction and your correct amount of tax. Your filing status is also important in determining whether you can take other deductions and/or credits. There are five filing statuses to choose from: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) With Dependent Child.

Q What sort of records must I keep to claim a credit for childcare or dependent-care expenses?

You should always keep documents indicating the dates and amounts of various fees you paid to an individual or a center to take care of your child or other dependent while you worked. If a child care worker lives in your home, keep track of the cost of meals and lodging expenses paid to him/her.

Q Is it true that taking the child-care tax credit can trigger an audit?

It is true that certain deductions are often red-flagged by the IRS. Unfortunately, child-care expenses are one of them. This is because often people pay their providers in cash and have no receipts to substantiate these deductions so a large claim for childcare credits may invite an audit. Paying by check and getting receipts for costs paid to your provider will come in handy should the IRS come knocking.

Q Who is eligible for a Hope Scholarship tax credit?

As part of the Taxpayer Relief Act of 1997, the Hope Scholarship tax credit allows most people to take a credit of up to $1,650 a year for college tuition and related expenses. The credit can be claimed for expenses for the education of the taxpayer, a spouse, or a dependent. The Hope Scholarship credit cannot be claimed by a student if the student is claimed as a dependent on another person's tax return. A parent may claim the Hope Scholarship credit even if their child paid their own tuition but is claimed as a dependent by parents.

Q What is the Lifetime Learning tax credit?

The Lifetime Learning tax credit is also a byproduct of the Taxpayer Relief Act of 1997. This nonrefundable credit can be applied against federal income taxes equal to 20% of college tuition and fees (up to $10,000) incurred during a year by a taxpayer, a spouse or a taxpayer's dependent. This means that the maximum tax credit per return will be $2,000. The Hope Scholarship credit and the Lifetime Learning Credit cannot be taken in the same year.

Q Does historic rehabilitation receive any special tax breaks?

A 20% investment tax credit for qualified rehabilitation expenses is currently taken for rehabilitated buildings and certified historic structures. A historic structure is one listed in the National Register of Historic Places or has been designated by an appropriate state or local historic district as being so. The tax code does not allow deductions for the demolition or significant alteration of a historic structure.

Q My ex-spouse has custody of our child. Can I still claim the new dependent child tax credit?

If all of the following are true, you can claim the child care credit:

The credit is phased out for married couples whose combined adjusted gross income exceeds $110,000 and for single people whose adjusted gross income is above $75,000.

Q What is the dependent child credit (also known as
the "kiddie tax credit")?

The Taxpayer Relief Act of 1997 created a new type of tax credit for parents, grandparents and others who are responsible for the care of children under the age of 17. Families that qualify receive a credit of $1000 per child in 2007. The credit is phased out for married couples whose combined adjusted gross income tops $110,000 and for single people whose adjusted gross income is above $75,000. The amount of the credit is reduced by $50 for each $1,000 in income over these income limits.