Tax Break Questions Answered

We all want to save as much as possible when it comes to taxes, and yet there are deductions and credits that many eligible taxpayers still dont use. Here are a few answers to tax break questions that may enlighten you and lighten your tax liability:

Whos Eligible for the Earned Income Tax Credit?

The Earned Income Tax Credit (EITC) is a tax credit for low-income workers and can be worth up to $4,500 this year.

Last year, more that 22 million taxpayers received the credit, but according to the IRS, almost one fourth of people who qualify for the credit failed to claim it. The IRS now has the EITC Assistant (an interactive tool) on its website to help you determine if youre eligible.

The credit is based on your income and your dependents. You may be eligible if your 2006 Adjusted Gross Income was under:

• $12,120 (or $14,120 if you are filing jointly) with no children
• $32,001 (or jointly $34,001) with one qualifying child, or
• $36,348 (or jointly $38,348) with more than one child.

To learn more about this tax credit, check out the EITC Assistant or read Publication 596 on the IRS website.

Does My Child Qualify for the Child Tax Credit?

As children grow up and gain their independence, it can be tricky determining whether or not you can count them as dependents on your tax return. Age, income and even education can all play a role.

To receive the child tax credit, you must have a child under the age of 19 at the end of the tax year. The child must be your child, grandchild, sibling or siblings child, or legally in your care through adoption or as a foster child. The child must be a US citizen and must be in your care for more than half of the year. Two people cannot claim the same child for a tax credit.

You can claim a child as old as 24 as long as the child is a fulltime student and you provide more that half of his or her support. If your child is earning a separate paycheck and earned less that $5,150 in 2006, the child does not need to file a return. However, if your child has taxes withheld then you would want the child to file a separate return to get a refund.

Can I Claim My Parent?

It is more difficult to claim an elderly parent as a dependent, but it is possible. Your parent does not have to live with you, but you must provide half of your parents support and your parents income must not exceed the exemption amount (this year $3,300).

For more on this tax credit, check out IRS Publication 501 (Exemptions, Standard Deduction, and Filing Information) or see this Bankrate.com article.

What is the Long Distance Telephone Excise Tax Refund?

This is a one-time tax refund for anyone who paid long-distance telephone taxes between February 28, 2003, and August 1, 2006. After a series of court cases, the tax, enacted in 1898, is considered invalid and the US Treasury must now refund approximately $13 billion to taxpayers.

To request a refund, you can choose the standard refund which ranges from $30 to $60 or you can request the actual amount you paid based on your previous telephone bills. While choosing the actual amount may result is a larger refund, choosing the standard refund is the easiest option because you avoid sorting 41 different phone bills and you have only one line to fill out of your tax return.

To learn more about this refund, visit the IRS website and select the Telephone Excise Tax Refund link.

Is there Tax Help for Disaster Victims?

Yes, and claiming a write-off for major disasters is probably worth the paper work required to make the claim. According to the IRS, a disaster includes fire, burglary, blizzards, storms, tornadoes, floods, hurricanes, earthquakes and other sudden, unexpected disasters that damage your property.

When filing your taxes, you will need to fill out Form 4684 (Casualties and Theft) and Schedule A (Itemized Deductions) and attach them to your return.

There are more options for victims of Presidentially-declared disasters, including the option to amend your previous tax return. If you suffered a loss in 2006, you have until April 17 to amend your 2005 return and claim the losses in that year.

The IRS has more information for disaster victims in Publication 547, which can be found through the IRS website.

Keep in mind that the amount of your deductions do not equal the amount of money you can save. Rather your deductions are deducted from you taxable income, which reduces your tax bill.