The Internal Revenue Service (IRS) website offers information on which credits and deductions are available for taxpayers. Understanding which tax breaks you qualify for offers lower tax liability and less income tax owed. The American Recovery and Investment Act of 2009 includes several changes and additions to credits and deductions previously offered by the IRS.
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A qualifying dependent must meet the requirements set by the IRS for you to claim him. Relationship is the first requirement: son, daughter, stepchild, brother, sister, half sibling, step sibling, and adopted or foster child. Age is next and the dependent must be 19 or younger at the end of the tax year, or under 24 if a full-time student, or any age for a disabled child. The dependent must have lived with you for at least one half of the year to meet the residency requirement.
A tax credit is a dollar-for-dollar tax liability reduction. The IRS offers a variety of tax credits each year. Some of these include earned income credit, child tax credit, homebuyer's credit, mortgage interest credit and energy-efficient credit. Based on the type of credit, the IRS may require a receipt or proof of purchase for you to claim the credit. Also, many credits have time lines you must meet to use the credit. Credit amounts and types offered by the IRS may change each year and you should review them annually for availability.
Deductions reduce the amount of taxable income for the taxpayer. The IRS offers a standard deduction to qualified taxpayers. Those who do not qualify are taxpayers who file returns for less than 12 months, aliens with dual-status and aliens who are non-residents. Itemised deductions may be best for the taxpayer if they come out to be a greater amount than the standard deduction offered. The deductions that are itemised include all medical bills, mortgage interest and points, charity contributions and losses due to casualty or theft.
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