Credits: Introduction

Credits, which reduce your tax bill dollar for dollar, are even better than deductions.

Deductions reduce your taxable income, whereas credits reduce your actual tax bill. In this chapter, you'll learn all about the different kinds of tax credits. There are credits for low-income workers, families with children and students of all ages. For workers with a low income, there are credits to help them save for retirement, and the money can be invested in the various tax-favored funds like IRAs and 401(k) plans.

What you can expect to learn from this chapter:

Tax credits: the better way to cut your tax bill   The differences between refundable and non-refundable tax credits are explained. Earned income tax credit   This credit is for low- and moderate-income workers. We look at some of the criticisms of this credit as well as confusion created when child custody is at issue. Child-related tax credits   The government recognizes that it's expensive to raise kids. Here are the common credits for children, day care and adoption costs. Education tax credits   The Hope scholarship and the Lifetime learning credit help students of all ages. Retirement saver's credit   A new credit in 2002, this is intended to encourage lower-income workers to save for retirement. Chapter 4 quiz   Three questions will help you recall what you learned about tax credits.