Dependents

• Claim exemptions for your dependents. A child must be 18 or under unless he is a full-time student, must be your child or adopted, have lived with you for six months and did not provide more than 50 percent of her expenses. You can claim other relatives as dependents if they do not make more than $3,650 and you pay at least half of their expenses. Each child can only be claimed on one tax return, so if parents file separate tax returns, the child can only be claimed on one return.
  
  

Deductions

• Deductions reduce the amount of taxable income. Everyone is eligible for at least one deduction: the standard deduction. This deduction is adjusted each year for inflation and depends on your filing status. About 60 percent of filers take the standard deduction. However, you have the option to not take the standard deduction and itemize your deductions instead. Itemized deductions include theft losses, donations, investment interest, mortgage interest and miscellaneous expenses. Some deductions, including contributions to traditional IRAs, student loan interest and educational expenses, are known as above-the-line deductions -- you can take them without giving up the standard deduction.
  
  

Credits

• Credits are more effective than deductions at reducing your taxes because they directly reduce your tax bill rather than reducing your taxable income. For example, if you were in the 15 percent tax bracket, a $400 tax deduction would decrease your tax liability by $60. But a $400 credit would drop your liability by $400. There are two types of credits: refundable and non-refundable. If a non-refundable tax credit reduces your tax liability below zero, you will not receive a refund. If a refundable tax credit reduces your tax liability below zero, you will receive a rebate check.