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Helping Working Families with the Earned Income Tax Credit

Across the nation, about 21 million people claimed the EITC last year, pulling in $39 billion, according to the IRS. Although only about 75 percent of eligible filers claimed their due, the federal program - which was created in 1975 under President Ford and later expanded under Presidents

EITC, HandsNet, Economic Security

In the past, clients of NORWESCAP's Family Self-Sufficiency program in Morris County, NJ have used the tax return they received through the Earned Income Tax Credit (EITC) for a down payment on a car, a security deposit on an apartment or to pay debts, said Penny Olson, the program's director.

For clients of Homeless Solutions, which provides affordable and transitional housing, the prospect of a large tax return can make a significant difference, executive director Elizabeth Hall said.

Those agencies are part of an effort to encourage low-income working residents to ask about the EITC when they file their 2005 taxes. The earned income tax credit is supposed to help low-income working families, but over the years it has been clear many eligible workers don't apply for it.

The Earned Income Tax Credit is for working families with incomes less than $37,263. If eligible, they may receive money back from the Internal Revenue Service (IRS) even if they don't owe taxes - but they must file a tax return. The EITC is above and beyond any amount the families get from the child tax credit, which is a maximum of $1,000 per child and is aimed mainly at middle income households.

Across the nation, about 21 million people claimed the credit last year, pulling in $39 billion, according to the IRS. Although only about 75 percent of eligible filers claimed their due, the federal program - which was created in 1975 under President Ford and later expanded under Presidents Reagan and Clinton - has eclipsed welfare as the main source of cash assistance for low-income families.

To help out, the IRS has set up something called the EITC Assistant on its Web site to provide information, eligibility worksheets and explanations of the credit.

A variety of organizations sponsor Volunteer Income Tax Assistance (VITA) sites in their communities to prepare tax returns for those who cannot prepare their own yet cannot afford professional help.

In concert with the IRS e-file program, whose goal it is to receive 80% of all tax returns electronically by 2007, www.Taxhead.com is encouraging low-income and first-time tax filers to try eFile in 2006 (filing 2005 tax returns).

An executive from Taxhead.com said, "We are trying to reach those persons that qualify for the earned income tax credit. Our tax software has always been free to use. In other words you can prepare your taxes for free and mail them to the IRS. But if you want to gain the benefits of eFile, or electronic filing, we charge a small fee of less than ten dollars."

 

Tax Credit for Going Solar

As we sit in the middle of winter, most people can’t believe how high their utility bills are. Going with solar energy can lower your bills and you get a hefty tax credit

tax credit, tax deduction, solar energy, alternative energy, bank account,

As we sit in the middle of winter, most people can’t believe how high their utility bills are. Going with solar energy can lower your bills and you get a hefty tax credit

Solar Tax Credit

Solar energy is a clean, renewable energy source. The production of solar energy on residential and commercial structures creates no pollutants and is starting to make serious financial sense. In 35 states, the concept of net metering is now an established fact. Net metering simply means you can sell energy from solar panel systems back to utilities, thus eliminating or seriously reducing utility bills. As oil and natural gas costs skyrocket, the Federal Government is doing even more to promote the use of solar energy.

In 2005, Congress enacted the Energy Policy Act. As part of the act, a tax credit was established for any person purchasing and installing residential solar energy systems for electric and water heating purposes. If you purchase and install solar systems for either of these purposes, you can take a 30 percent tax credit. If you install systems for both of these purposes you can double the tax credit. To avoid tax abuse, each tax credit has a cap of $2,000.

Importantly, tax credits are far more valuable than tax deductions. Tax deductions are taken from your gross income prior to figuring the amount of tax owed. Tax credits are a dollar for dollar reduction of the actual amount of tax you owe. For instance, if you prepare your tax returns and find you owe $5,000 to the IRS, a tax credit would be deducted from this $5,000 figure. In short, a tax credit gives you a lot more bang for your buck.

To claim the solar tax credit, there are a few restrictions and requirements. First, you can’t claim the tax credit if you use the solar system to heat a hot tub or pool. Second, the system must be certified by a solar rating certification corporation to establish that you, in fact, installed a working system. Third, the system must be activated between January 1, 2005 and the end of 2007. Finally, you cannot claim the credit if the government gave you a grant or financing to purchase the system, to wit, no double dipping.

When solar energy is discussed as a potential alternative energy source, most supporters point to the environmental benefits. Ultimately, the benefits to ones bank account will really make the difference and the solar tax credit is a solid step in that direction.

 

Getting a Tax Credit for Your Kids

As you know, raising a family is a full time job and can put stress on your finances. Fortunately, you can claim a tax credit to help cut your IRS bill if you have kids.

Tax credit, children, tax deductions, earnings, irs, tax, taxes,

As you know, raising a family is a full time job and can put stress on your finances. Fortunately, you can claim a tax credit to help cut your IRS bill if you have kids.

Getting a Tax Credit for Your Kids

With a tax deduction, you are reducing the total amount of adjusted gross income you have. For instance, if you earned $50,000 dollars in 2005 and take a $1,000 deduction for something, you’ll have to pay tax on $49,000 dollars in earnings. Put another way, the $1,000 tax deduction will save you a hundred dollars or so in the amount you have to send to the IRS.

A tax credit is a beautiful thing. It is designed to reduce the amount of taxes you on a dollar for dollar basis. Taking our example above, you would not deduct a $1,000 tax credit from the $50,000 you earned. Instead, you would go to the tax tables and determine the amount of tax you owe on the $50,000. Let’s say the tax tables reveal you owe $9,000. You would reduce this amount by the $1,000 tax credit and pay $8,000 dollars to Uncle Same. Put another way, tax credits are tax deductions on steroids!

If you are raising children, you may be able to claim a tax credit for each one. They must be under 17 at the end of the tax year, a U.S. citizen, your child and a dependent. Adopted children fit within the tax credit as do stepchildren and certain foster children.

This tax credit, however, does have some limitation. The primary issue is something called the phase out. If you make more than a particular dollar figure, the tax credit is either reduced or eliminated depending upon your particular circumstances. The phase out start when your adjusted gross income exceeds the following amounts:

1. Married filing Jointly: $110,000

2. Married filing Separately: $55,000

3. All Other Designations: $75,000

It is important to keep in mind that this tax credit is not a profit center. If you owe the IRS $4,000, but can tax a tax credit for 5 children, you will not get $1,000 back from the IRS. Instead, you tax bill is simply canceled out.




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