Tax Credits - Part 2

The adoption credit is based on the cost of adopting a child. The earned-income credit is the only credit given as a payment. There are two education credits, the Hope Scholarship credit and the Lifetime Learning credit.

Adoption Credit

The adoption credit is based on the cost of adopting a child. You can claim up to $5,000 ($6,000 for a special-needs child) of qualified expenses. These fees include reasonable adoption fees, court costs, attorney fees, and legal fees. The credit is phased out for income levels between $75,000 and $115,000.

Earned-Income credit

The earned-income credit is the only credit given as a payment. The credit is available of low-income families, usually with children. If you do not have a qualifying dependent but are between the ages of 25 and 65 with a very modest income, you may be eligible for the earned-income credit.

Education Credits

The government is finally offering some relief for parents paying for college expenses. There are two education credits, the Hope Scholarship credit and the Lifetime Learning credit, now available, but the credit is phased out for single parents with incomes, between $40,000 and $50,000 and for married parents filing jointly between $80,000 and $100,000. These credits are mutually exclusive, which in tax-speak means that you can't use them for the same kid in the same tax year. So you'll need to do some planning here.

The Hope Scholarship credit is available for the first two years of college. The credit is worth 100 percent of the first $1,000 in tuition expenses and 50 percent of the next $1,000 for a maximum credit of $1,500. After the year 2000, this amount and the income limitation will be adjusted for inflation.

The Lifetime Learning credit is not just for kids. Anyone who is enrolled in undergraduate or graduate courses or just taking courses to improve this or her job skills can use the credit. This is a tax credit of 20 percent on up to $5,000 of qualified tuition and fees. The maximum credit is $1,000 through 2002. After that, the credit increases to $2,000.