Most people cringe when it’s time to file taxes. They rush through their returns or hire accountants to do the work -- for large fees -- only to feel that the tax code has eaten most of their hard-earned income.
A number of federal tax credits, however, exist to help taxpayers -- primarily those in middle-income and low-income households -- retain more of their earnings. Identifying which credits apply to you will reduce your pain as you prepare to file your income tax return.
"Credits can have a real impact on income," said Thomas Jensen, a financial adviser and managing partner of Vaerdi LLC in Portland, Oregon. "In my work what typically happens is I'll see young professionals -- say, right out of school or who are just not that advanced in financial planning -- they’ll invest $500 in a tax planner or say, 'I'll just do it myself.'
"In general, they don't inform themselves and so they don't take full advantage of their tax situation."
"I like to encourage people, especially low-income people, that they have a retirement account and they regularly contribute to it. Not only do you get to take whatever you put in right off the top of your total income, you also get to take a credit for up to $1,000 for what you contributed."
- Thomas Jensen, financial adviser and managing partner of Vaerdi LLC in Portland, Oregon