Itemizing Deductions

• The federal tax law gives most taxpayers the choice of claiming the standard deduction, which has no additional reporting requirements, or deducting their total expenses that can be itemized on a Schedule A. Regardless of your eligibility for other tax credits, you always get to reduce your taxable income by one of the deductions. Moreover, tax credits never show up on your Schedule A. To illustrate, the common expenses you can itemize include your mortgage interest and insurance, state and local property, income and sales taxes, charitable contributions, job-related expenses and casualty losses. All tax credits require the filing of a separate form and are reported at the end of your return after claiming all deductions.
  
  

Using Tax Credits

• The IRS allows you to claim any tax credit that you specifically qualify for in addition to your standard or itemized deductions. Tax credits are more effective at reducing your tax bill in most circumstances since the credit amount reduces your tax liability on a dollar-for-dollar basis rather than just reducing your taxable income. The types of tax credits available each year are subject to change as Congress sees fit.
  
  

Hybrid Car Conversions

• Consumers who purchase a kit to convert a car into a hybrid vehicle can take advantage of an IRS tax credit of up to $4,000 for 10 percent of the kit's purchase price. To qualify, the conversion kit must enable you to power your motor vehicle with electricity using a plug-in rechargeable battery. In addition, the conversion of your car to a hybrid must be complete by Dec. 31, 2011. Merely purchasing the kit doesn't by itself qualify you to claim the credit.
  
  

Home Energy Credits

• The IRS offers consumers a tax credit for purchasing new windows, doors and roofs that increase the energy-efficiency of the home as well as the cost of purchasing insulating material. It also covers the purchase of energy-efficient equipment, such as air conditioners, heat pumps, water heaters, furnaces and boilers. As long as you purchase and install the items before the end of 2011, you can claim a credit equal to 10 percent of the purchase price. The maximum credit you can claim is $200 for window purchases and $500 for all other qualifying equipment. If you claimed the credit in a prior tax year, your credit may be subject to reductions.