Critical Tax Benefits You Should Know About

The following are a list of critical tax benefits all tax payers should be aware of.  Pay particular attention to the first one, as this will negatively affect taxpayers by reducing the amount they receive from the Child Tax Credit.

• The Child Tax Credit is set to decrease from $1,000 per child in tax year 2009 and 2010, to $500 per child in 2011. If you and your child(ren) qualify, it offers a hefty tax cut — especially this year. Remember that a credit is better than a deduction, since it reduces your tax bill dollar for dollar. If you’re in the 25% tax bracket, a single eligible credit is like having $4,000 of taxable income erased. If you have three children … well, you get the ide
• There’s a “Making Work Pay” credit that can put as much as $400 in your pocket (or as much as $800 for married folks filing jointly). It represents 6.2% of earned income, for those who qualify based on adjusted gross income. You may already have seen its impact via a reduction at work in your withheld taxes.
• The maximum IRA contribution for those who qualify is actually staying the same for 2010 — it’s $5,000 for most of us, and $6,000 for those 50 or older. IRAs are good places to stash dividend-paying stocks such as Lockheed Martin (NYSE: LMT),DuPont (NYSE: DD), or Chevron (NYSE: CVX). If you play by the rules, Roth IRAs will let you withdraw everything tax-free — making them especially attractive places to park stocks you expect to soar.
• Because of low inflation, some feared that contribution limits for 401(k) accounts would be lowered for 2010, since they’re supposed to be adjusted in line with inflation. But they remain the same in 2010, at $22,000 for those 50 and older, and $16,500 for the rest of us. Apparently, Uncle Sam is taking pity on the many of us who have not saved enough, and helping older Americans try to catch up.
• The Wall Street meltdown that knocked huge companies like Citigroup (NYSE: C) andAIG (NYSE: AIG) for a loop also battered gobs of homebuyers, some of whom had a portion of their mortgage debt forgiven. Under standard IRS rules, the value of that aid would count as taxable income, but the Mortgage Forgiveness Debt Relief Act waives that, for those who qualify. That’s a very big deal; if you had $40,000 of debt forgiven, a 25% tax on that would amount to $10,000!
• Similarly, unemployment income is usually taxable — but for 2009, you can exclude the first $2,400 you get.

Source: The Motley Fool