Take advantage of tax credits

Keeping track of deductible expenses is smart, but tracking your qualification for tax credits is even better. Tax credits work much like tax payments; that is, they offset your tax liability dollar for dollar.

Here's an illustration: Suppose you owe $750 in federal income tax. If you're eligible for a $500 credit, you'd subtract that from the $750 to arrive at your final tax bill of $250.

The tax code is full of tax credits, both for individuals and businesses. Here are just a few:

* Education credits

* Child and dependent care credit

* Child tax credit

* Adoption credit

* Foreign tax credit

* Research credit

* Energy credit

* Credit for the elderly

* Retirement savings contribution credit

* Alternative minimum tax credit

* Disabled access credit

* Health insurance credit

* Pension plan startup credit

* Work opportunity credit

Most tax credits have specific requirements, and many are subject to income limitations. Don't overlook tax credits in your tax planning; find out how to qualify for those that could reduce your tax bill.