5 Ways to Lower Your Tax Bill

While you’re gathering your records for your 2009 taxes, don’t overlook these valuable credits and deductions.

Dependent care. If you have children younger than 13, you may qualify for a tax credit of up to $1,200 to help pay the costs of day care, preschool, before- or after-school care, babysitters or even day camp while you work or look for work. See IRS Publication 503, Child and Dependent Care Expenses at www.irs.gov.

Retirement savers’ tax credit. Contributions to a 457, IRA or other retirement plan can earn you a double tax break: Not only do you get a tax deduction for your contribution (or tax-free growth for Roth IRAs), but you may also qualify for the retirement savers’ tax credit, which can trim your tax bill by up to $1,000 per person.

Breaks for college bills. A new law improves the tax breaks for college costs. The new American Opportunity credit replaces the Hope credit for 2009 and 2010 and increases the size of the maximum credit from $1,800 to $2,500. The income limits to qualify have increased, too—from $58,000 to $90,000 if you’re single and from $116,000 to $180,000 if you’re married filing jointly. While the Hope credit was limited to the first two years of college, the American Opportunity credit is available for the first four years of college.

New car purchase. If you bought a new car between February 17 and December 31, 2009, then you can deduct state and local sales taxes and excise taxes paid on up to $49,500 of the cost of the car (or a flat fee your state imposes on vehicle purchases). The tax break applies to new (not used) cars, light trucks, motor homes and motorcycles. To qualify, your modified adjusted gross income must be less than $135,000 if single or $260,000 if married filing jointly.

Home Buyers. First-time home buyers can get a credit of up to $8,000 if they have a binding contract by April 30, 2010 and close on a home by June 30. And now people who owned a home for five of the past eight years can get a credit of up to $6,500 for buying a home. See “An Expanded Tax Break for Home Buyers"" at www.icmarc.org/retire for details, deadlines and income limits.