Federal Income Tax Credits
Available
The federal tax laws contains some fairly generous tax credits, for those who
are lucky enough (or smart enough) to be able to take advantage of them. The
credits can generally be divided into these four categories:
- Credits for certain taxes -
credits are permitted to offset the sting of certain taxes, including FICA
taxes on tips for food and beverage establishment employees, foreign taxes,
a portion of prior alternative minimum tax (AMT) liability, and gasoline
taxes paid by farmers or off-highway-vehicle users.
- Credits for activities that
benefit disadvantaged or low-income persons - there are a number of
credits designed to encourage employment or investment that benefits certain
groups: the welfare-to-work credit, the disabled access credit, the
empowerment zone employment credit, the Indian employment credit, the low
income housing credit, the credit for contributions to Community Development
Corporations, and the work opportunity tax credit (formerly known as the
targeted jobs credit, which has expired).
- Credits for activities that
benefit the environment - currently, the largest group of credits are
those for investment in equipment or processes that save energy or protect
the environment in some way: the alternative fuels credit, the credit for
qualified electric vehicles, the reforestation credit, the energy credit,
the alcohol fuel credit, the enhanced oil recovery credit, and the renewable
resources electricity production credit.
- Credits for certain other
investments - the smallest (and shrinking) group of credits relates to
certain investments that are deemed socially beneficial: the rehabilitation
credit for old or historic buildings, the orphan drug credit, and the
research and development credit.