By Susan Thomas, Senior Manager

Your tax deadline is quickly approaching and you don’t want to neglect one of the best ways to reduce your tax burden: tax credits. There are many of them, but today I would like to discuss four of the most common tax credits:

• Foreign Tax Credit
• Child and Dependent Care Expenses Credit
• Education Credits
• Residential Energy Credits

Foreign Tax Credit

If you paid foreign taxes you can either (not both) claim a foreign tax credit or a tax deduction on your Schedule A. There are two caveats:

a) Taxes must be paid to a foreign government or US possession
b) On income that is also subject to US tax.

In most cases, it is better to take a tax credit, which will be claimed on Form 1116. You can elect not to file Form 1116 if the foreign tax paid is less than $300 (single), $600 (married filing jointly), and all foreign income is passive income (dividends or interest).

Child and Dependent Care Expenses

If you paid someone to care for your child so you could work (or look for work), you may be able to claim a credit. You must have earned income and have a qualifying child under the age of 13 whom you can claim as a dependent. The credit ranges from 20 percent to 35 percent, with a maximum credit of 20 percent of qualified expenses if you have an adjusted gross income (AGI) over $43,000.

You can claim expenses paid for household services and care of your child:

• Household services: Includes care for the child as well as help to run your home, such as a cook, a maid, a babysitter, a housekeeper, or a cleaning person.
• Care of child: Includes the cost of services for the child’s well-being and protection, such as the cost of care provided outside of the home.

The maximum amount of expenses is $3,000 for one child and $6,000 for two or more. Make sure you have the care provider’s social security number or EIN – you will need it for claiming this credit on Form 2441.

Education Credits

There are two education credits available for qualified tuition and other related expenses for you, your spouse, or any dependent claimed on your return, using Form 8863. Parents who do not meet the adjusted gross income limit may choose not to claim the student as a dependent, so the student can claim the education credit on his/her return. If this is the case, no one claims the dependency exemption. Furthermore, credit cannot be claimed for expenses that are reimbursed by an employer.

  • American Opportunity Credit: The maximum amount available is $2,500 (100 percent of the first $2,000 and 25 percent of the next $2,000). A total of 40 percent is refundable. The credit is reduced for a modified adjusted gross income between $160,000 – $180,000 (married filing jointly) or $80,000 – $90,000 (single, head of household). Qualified expenses include tuition, enrollment fees, and course materials (whether or not paid to the institution). Ineligible expenses include room and board. There are several eligibility criteria:
    • Student must be in the first four years of postsecondary education.
    • It is available only for four tax years per student (including any year a Hope credit is claimed).
    • Student must be enrolled in a degree program at least half-time.
    • Student must not have been convicted of a felony for possession or distribution of controlled substance.
  •  Lifetime Learning Credit: The credit is 20 percent of the first $10,000 of qualified expenses, or $2,000. It is reduced for modified adjusted gross income between $111,000 – $131,000 (married filing jointly) and $55,000 – $65,000 (single, head of household). Qualified expenses include tuition, enrollment fees, and amounts paid to the institution for course-related books, supplies, and equipment. Ineligible expenses include room and board. There are several eligibility criteria:
    • Available for all years of postsecondary education, plus courses to acquire or improve job skills.
    • Available for an unlimited number of tax years.
    • Student does not need to be pursuing a degree.
    • Available for one or more courses.
    • Felony drug conviction does not make student ineligible.
    • Cannot claim the lifetime learning credit for any student for whom you claim the American Opportunity Credit in the same tax year.

Residential Energy Tax Credits

If you made energy saving improvements to your home in 2015, you may be eligible to take the residential energy tax credit, using Form 5695. The definition of “home” is where you lived. This includes a house, houseboat, mobile home, cooperative apartment, condominium, or manufactured home. There are two credits available:

  • Residential Energy Efficient Property: This credit is for existing homes and homes being constructed. It consists of 30 percent of the costs of:
    • Qualified solar electric property — property that used solar energy to generate electricity.
    • Qualified solar water heating property — property used to heat water for use in the home if at least half of the energy is derived from the sun. Must be certified for performance by the Solar Rating Certification Corporation or comparable entity endorsed by the government of the state in which the property is installed.
    • Qualified small wind energy property — property that used a wind turbine to generate electricity.
    • Qualified geothermal heat pump property — any equipment that uses the ground or ground water as a thermal energy source to heat your home or as a thermal energy sink to cool your home. Must meet the requirement of the Energy Star program that is in effect at the time of purchase.
    • Qualified fuel cell property — an integrated system comprised of a fuel cell stack assembly and associated balance of plant components that converts a fuel into electricity using electrochemical means.
  • Nonbusiness Energy Property Credit: This credit is for existing homes only. It consists of 10 percent of the cost of qualified energy-efficient improvements plus 100 percent of residential energy property expenditures. It is limited to a total combined credit of $500 for all years after 2005; a combined credit limit of $200 for windows for all years after 2005; $50 for an advanced main air circulating fan; $150 for qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for energy-efficient building property. The credit was extended through December 31, 2016. To determine whether a product is eligible, you may rely on the manufacturer’s certification that a product is qualifying property. Keep the certification for your records. The eligible improvements and/or products include the following:
    • Insulation material or a system specifically designed to reduce heat loss or gain when installed.
    • Exterior windows and skylights.
    • Exterior doors.
    • Any metal roof with appropriate coatings or asphalt roof with appropriate cooling granules specifically designed to reduce heat gain.
    • Residential energy property costs. Must meet energy efficiency requirements.
    • Electric heat pump water heaters; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; and stoves that use biomass fuel. (Biomass means the stove uses wood or pellet fuel.)
    • Qualified natural gas, propane, or oil furnaces and hot water boilers.
    • Certain air circulating fans used in natural gas, propane, or oil furnaces.

If you have any questions about the tax credits available to you, your eligibility or any other details concerning the information discussed here, you should reach out to your tax advisor.

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