There are two types of credits that you have in your yearly taxes, refundable and non-refundable.  Refundable tax credits will allow you to receive a refund on taxes you have overpaid.  Non-refundable tax credits will pay toward your tax bill until it reaches zero.  If you made any overpayments during the year and have non-refundable tax credits, the IRS will get to keep that overage.

 

The refundable tax credits include:

 

1.  Additional Child Tax Credit.  Up to a maximum of $1,000.

 

2.  Earned Income Credit.   Varies, depends on income.

 

3.  Excess Social Security Tax Withheld.  Varies.

 

4.  First Time Homebuyer.  Up to $7,500 for first time home buyers, who purchased homes between between April 9, 2008 to July 1, 2009.  Unlike other tax credits, this one will need to be repaid, at $500 per year, up to 15 years.  Essentially, it is an interest-free loan.

 

5.  Health Coverage Tax Credit.  Pays off 65% of health care premiums to qualifying tax payers.

 

Non refundable tax credits include:

 

1.  Adoption Credit.  Up to $10,390 per child.

 

2.  Child and Dependent Care Tax Credit.  Depending on the adjusted gross income, 20% to 35% of qualifying expenses.

 

3.  Electric Vehicle Credit.  7.5% of the new vehicles cost,  up to $3,000 in credit.

 

4.  Elderly and Disabled Credit.  Varies.

 

5.  Foreign Tax Credit.  Varies, depends on income tax from foreign country, and income.

 

6.  HOPE Scholarship Credit.  Credit up to $1,500 per child.

 

7.  Mileage.  For the period of January-June 2008, Business $0.505 per mile, Charity $0.14 per mile, Medical and moving $0.19 per mile.  For July-December 2008, Business $0.585 per mile, charity $0.14 per mile, and medical and moving $0.27 per mile.

 

8.  Lifetime Learning Credit.  Twenty percent of the first $10,000 of eligible expenses, up to $2,000.

 

9.  Retirement Savings Contributions Credit.  (also known as Savers Credit)  20% of the first $10,000 of eligible expenses, up to $2,000 maximum.

 

Tax planning now is key to maximizing your future returns.  To maximize your own tax benefits, pay as little as possible out of your paycheck per pay period, and set aside enough money to pay your taxes later will guarantee that you will not lose money in the end.  Set yourself up by contacting your HR department, and have money automatically deposited into a special bank account that you dedicate to just paying your yearly taxes.  Having this extra money automatically deposited into a special bank account will help assure that you will not be overwhelmed with a new tax bill.  At the end of each tax year, after you pay your taxes, you can then withdrawal the previous tax years overage, which now acts as your "refund".  Of course, there are always the options of consulting a CPA, purchasing tax or finance software, or looking up information at www.irs.gov for more advice.

 

What about individuals who have zero taxable income?  People who have zero taxable income should still file a tax return.  While they would not owe any taxes, if they have a refundable tax credit, may actually receive a tax refund.

 

Other considerations.  Due to economic fallout, we are actually seeing states suspending income tax refunds.  Kansas has already announced that it will not be refunding for the 2008 tax year, and we will likely see others follow suit.  To maximize your own tax benefits, pay as little as possible out of your paycheck per pay period, and setting aside enough money to pay your taxes later will guarantee that you will not lose money in the end.

 

Tax Planning - Refundable vs. Non Refundable Tax Credits How to Settle Credit Card Debt Myself Your FICO Score Now Counts Authorized Users Wills do not Avoid Probate Court, Where Living Trusts Avoid Probate Completely Taking Out Debt Right Before Bankruptcy 3 Harmless Activities that Will Lower Your Credit Score Obama's Economic Stimulus Package (American Recovery and Reinvestment Program) Contribution Limits for 2008 and 2009 401(k)'s 2 Tips to Lower your Monthly House Payment Tax Stimulus Rebate for 2009 Stop Impulse Purchases (Buying) Chart of Debt Snowball (Affects of Exponential Decay on Debt Snowball) Call Your Telemarketer (Highlights for Children) - Is This How Bad the Economy Has Become? How to Increase Your Credit (FICO) Score in Four Easy Steps Questions to Ask Yourself Before Filing for Bankruptcy Helping Family and Friends (and Protecting Yourself) During the Credit Crunch Refinancing Your Home 3 Great Ways to Pay Off Debt Exponential Decay and the Stock Market 2 Methods for Creating an Effective Budget How to Manage Unpredictable Income