Tax credits

Unlike exemptions and deductions, which reduce your taxable income, tax credits directly reduce the amount of tax you owe dollar-for-dollar. That makes them an even more valuable way to reduce what you owe. So you’ll want to be sure you’re claiming all of the credits you qualify for.

Most credits have income limits, which may reduce the tax benefit, or make you ineligible to claim the credit at all. But because various tax credits have different eligibility limits, you’ll want to check to make sure you qualify. Some of the limits tend to remain the same from year to year and others increase slightly each year to account for inflation.

Family values

Many of the most popular tax credits are designed to help families in one way or another. While most of these credits have been around for years, some have been expanded in 2006. If you haven’t claimed these credits before, or if your family or financial situation has changed, you may qualify for the first time. So make sure you check to see if there are new credits each year that may apply to your situation. Or, visit a tax adviser if you are uncertain what credits you may qualify for.

Keep in mind that using certain credits may make you ineligible for other tax breaks, something that’s particularly true of education credits. So plan ahead, do all the research you can, and get expert advice. On this topic, as well as others, the IRS provides helpful information, both in Publication 17 and in Publication 970, Tax Benefits for Education.