Take Credit for Tax Credits

Tax credits reduce your tax liability dollar-for-dollar; that's practically the same thing as money in your pocket.

Tax credits are the low-hanging fruit of personal finance. They're out there and readily available, so it's important that you harvest them for all they're worth.

Alternative Minimum Tax (AMT)

If you were stung by the AMT in 2007, cross your fingers-you may qualify for the AMT credit this year. Eligibility for the credit depends largely on what the factors were that pushed you into AMT territory in the first place, and whether or not those factors will recur. You can calculate and claim your credit with IRS Form 8801, "Credit for Prior Year Minimum Tax-Individuals, Estates, and Trusts."

Adoption bonus

The adoption credit compensates you for up to $11,390 of qualifying expenses incurred to adopt an eligible child. This limit is applied per child, not per year; if you claim $5,000 in one year, for example, you're limited to claiming $6,390 in the next year with respect to the same adoption. An eligible child is defined, in part, as one who's either under 18 years of age, or physically or mentally incapable of self-care. If the child is not a U.S. citizen, you're eligible for the credit only after the adoption is finalized. Qualifying expenses include adoption fees, legal expenses, and costs of travel. There's an income limitation associated with the adoption credit; when your modified adjusted gross income (MAGI) hits $170,820, the credit starts to phase out. Use Form 8839, "Qualified Adoption Expenses," to claim your credit.

Education perks

If you have a child who's in her first or second year of college, you may qualify for the Hope Credit. The maximum deduction here is $1,650. To be eligible for the full amount, you must have incurred at least $2,200 in education expenses during the tax year.

The Lifetime Learning Credit can be claimed when you pay expenses associated with the continuation of undergraduate, graduate, or professional studies. This one's calculated as 20 percent of the first $10,000, and is capped at $2,000 per household.

Both the Hope Credit and the Lifetime Learning Credit are subject to phase-outs based on income. Your available credit is trimmed when your adjusted gross income (AGI) is higher than $94,000, and is wiped out completely if you earn more than $114,000-that's assuming you're married and filing jointly. The single taxpayer income thresholds are $47,000 and $57,000, respectively. These credits are claimed with Form 8863.

Help for savers

The IRS might even give you an extra $1,000 or $2,000 just for making contributions to your 401(k) or IRA. The Saver's Credit is available to single folks who make no more than $26,000, heads of households who make no more than $39,000, and married couples, filing jointly, who make $52,000 or less.

If one or more of these tax credits is ripe for the picking, there's no reason not to grab it.