Some deductions have corresponding credits, and vice versa, leaving people confused about which to claim. (Education is one of those areas). In almost all cases, the credit is the optimal route. "The quick and dirty rule of thumb is that if you take the amount of the deduction and multiply it by your tax rate, that gives you roughly the credit equivalent," explains Erb. So, if the credit amount is greater, which it usually is, that's the one to take.
The true key to maximizing credits is simply to educate yourself on what's out there and how to claim them. "People miss out on credits because they don't know about them or realize that they qualify for them," says Erb. Many credits are income-based, and designed to ease the costs of child care and higher education.
"Education credits can be very overlooked," says Kathy Hettick, first vice president for the National Society of Accountants. "Make sure that you understand the credits and are keeping track of the educational expenses and tuition you're paying." One prime way to maximize the education credits is to accelerate payment of tuition and other related expenses in the current year. That way, you'll have more to claim and can enjoy the credit at a higher level come tax time.
Since circumstances change from year to year, it's also worth revisiting credit and deduction opportunities regularly to see what you qualify for, particularly if you've gotten married, had a baby, moved or your income level has dropped. Contrary to popular belief, seeking the assistance of a tax professional can help people of all financial persuasions. "Tax planning isn't just something you do if you're in a high income tax bracket," says Erb. "If you make $20,000 a year your AGI is lower, so you only have to pay $2,000 in medical expenses to qualify for that credit."
The bottom line of maximizing tax return potential? Keep meticulous records and educate yourself or enlist the assistance of someone who's well-versed in the tax arena. What have you got to lose? Certainly not money!