Before reaching this stage of your tax return, you dealt with exemptions, adjustments and deductions, all of which were useful in reducing the amount of your income that was subject to tax.

Now you get another shot at reducing your tax bill, but this time directly, by way of tax credits. Instead of simply lowering the number of dollars on which your tax is figured, a tax credit gives you a dollar-for-dollar reduction in the tax itself.

The chart on page 23, "Claiming Tax Credits," tells you where to enter each credit; the applicable IRS publication is also listed, should you want to do further research after reading the following explanations. Credit for Elderly, Disabled

You may qualify for the special tax credit for the elderly and the disabled if you meet either of the following tests:

You were age 65 or older on Dec. 31, 1985, and had taxable income of any kind during the year.

You were under age 65 on Dec. 31, 1985, you retired for permanent total disability, or you were permanently and totally disabled on Jan. 1 of either 1976 or 1977, and you received taxable disability income during 1985.

In either case, you must be a citizen or resident of the United States; if you're married, you must file a joint return to claim the credit (unless you are filing a separate return and didn't live with your spouse at any time during 1985).

The first step in completing Schedule R is to determine your filing status for purposes of this credit. Your Schedule R status is likely to be different from your basic 1040 filing status; review the nine different descriptions, because the box you check has an impact on the amount of allowable credit.

Computations start with an initial maximum allowance for the filing status appropriate to your situation, either $3,750, $5,000 or $7,500. (These allowances are not indexed.) From that starting amount, you must subtract certain pension and annuity payments not included in taxable income, like the nontaxable portion of Social Security benefits.

Then there is a further offset of 50 percent of adjusted gross income above specified ceilings shown on Schedule R. The tax credit is 15 percent of any amount remaining after these deductions. If you qualify for the tax credit for the elderly or disabled, carry the amount of the credit from line 21 of Schedule R to line 42 of Form 1040. Foreign Tax Credit

You may be allowed a credit against your U.S. income tax liability for income (or equivalent type) taxes paid to a foreign country if you were a U.S. citizen or resident for all of 1985.

In lieu of the credit, you may elect to take a deduction on Schedule A. In most cases, the credit will be preferable because it provides a dollar-for-dollar offset against U.S. taxes rather than a reduction of taxable income. Of course, if you take the ZBA rather than itemizing, the credit is the only available option.

You compute the foreign tax credit on Form 1116, which contains detailed instructions for its completion. Further information about the credit and the alternative deduction is available in IRS Publication 514. Investment Tax Credit

If you are employed -- either for yourself or for another -- you may claim a tax credit for your investment in tangible depreciable personal property bought for use in your business or profession.

The normal credit is 10 percent of the qualifying value of ACRS (accelerated cost recovery system) property placed in service during the year. The "qualifying value" is 100 percent of property with a useful life greater than three years, but only 60 percent of the amount invested in property with a useful life of three years.

For property placed in service after 1982, the basis for depreciation must be reduced by 50 percent of the investment tax credit taken on that property. But there is an alternative: If you elect to decrease the investment credit by 2 percentage points (that is, from 10 to 8 percent), you then may use the full-cost basis for depreciation purposes.

For specific types of business property -- notably automobiles and computers -- the rules are stricter. The property must be used more than 50 percent for business purposes to qualify for either the investment tax credit or accelerated depreciation.

If a car doesn't meet this 51 percent test, you lose the tax credit and must depreciate the car over at least five years using the straight-line method. Even if the car meets the use test, there is a dollar limit on both the investment tax credit and the amount of annual depreciation.

For a car placed in service before April 3, 1985, the investment tax credit is limited to $1,000; for an automobile placed in service on or after April 2, the ceiling on the investment tax credit is further reduced, to $675. Similarly, depreciation is limited to $4,000 for the first year and $6,000 a year thereafter for cars placed in service before April 3, 1985; after that date, the corresponding annual limits are $3,200 and $4,800.

If the 51 percent business use is not met for a personal computer, the investment tax credit may not be claimed, and depreciation must be figured straight line over a projected life of 12 years.

Use of a computer for investment management does not qualify as business use, even though it may have an income-producing motive. However, if you can substantiate more than 50 percent use for a bona fide business purpose, then you may include its use for portfolio management to determine the percentage of total use to be counted for both the tax credit and depreciation.

On Form 1040, the investment tax credit has been combined with three other credits -- the targeted jobs credit, the alcohol fuels credit and the employe stock-ownership credit -- into a single line item called the "general business credit" (line 48).

If you claim just one of these four credits, attach the applicable form: 3468 for the investment credit, 5884 for the jobs credit, 6478 for the alcohol fuels credit or 8007 for the employe stock-ownership credit. If you claim more than one, also attach summary form 3800.

Confused? Well, if you're in business and getting involved with the investment tax credit and the complex rules governing depreciation or any of the other general business credits, you probably should have professional help on a continuing basis. If you want to go it alone, see the pertinent sections of IRS Publication 334 as a starter. Political Contributions

You may claim a tax credit for half of your total qualifying political contributions made during 1985, up to a ceiling of $100 on a joint return, $50 on all others.

To qualify, your contribution must have been made to a candidate for elective public office or to a newsletter fund or political action committee of a candidate or an elected public official.

The $1 checkoff on the tax return for financing election campaigns is not a qualifying political contribution. That dollar -- if you check the "yes" box -- does not increase your tax liability or decrease any refund you may have coming. Instead, $1 is transferred from the general treasury to a special fund used to help finance later nomination and election campaigns of qualifying presidential candidates. Child and Dependent Care

The rules for calculating the tax credit for expenses incurred in caring for a child or other dependent are essentially unchanged from 1984. The only significant change applies to divorced or separated parents: If the custodial parent has waived the right to claim a dependent exemption for a minor child, the child still may be considered a dependent for purposes of qualifying for this credit.

Regardless of your marital status, however, you must have maintained a home of your own during 1985, and the qualifying individual for whose care you claim the credit must have been a member of your household. There are two principal requirements:

*The expenses must have been incurred for care of a child under age 15, or for a spouse or dependent who was unable to care for himself or herself.

*The care must have been provided to permit the taxpayer (both spouses in the case of a married couple) to be employed for pay or to search for work. In special circumstances, as explained below, the credit is available to a couple even if only one spouse was employed.

If your adjusted gross income (AGI) was $10,000 or less, you may claim a tax credit equal to 30 percent of qualifying expenses up to a specified ceiling. The rate is reduced one percentage point for each $2,000 (or fraction) of your AGI above $2,000. When your AGI reaches $28,000, the credit levels out at 20 percent for all remaining taxpayers, with no income cutoff.

The ceiling on eligible expenses is $2,400 for the care of one individual and $4,800 for two or more persons. Because the percentage of expenses that may be claimed as a credit drops with rising income, the actual credit ceiling varies.

The accompanying table shows the percent of qualifying expenses you may deduct for each AGI level, in $2,000 steps to the 20 percent minimum (AGI above $28,000). The applicable ceiling is shown for each income level for the care of one dependent and for two or more dependents.

The credit normally is allowed only for care in the home paid during 1985. But care outside the home -- babysitting service, nursery school, even a summer camp -- also may qualify in the case of a child under age 15.

If you are married, you must file a joint return to claim the credit. However, you may be eligible even if you file a separate return if you meet these tests:

*You were legally separated or living apart from your husband or wife.

*You paid more than half the cost of maintaining a home in 1985 that was also the principal home of the qualifying individual for more than half the year.

*Your spouse was not a member of the household during at least the last six months of 1985.

If you are single, the amount of expenses you may take into account for the credit may not exceed the amount of your earned income for the year.

For married taxpayers filing jointly, the amount of expenses claimed may not be greater than the earned income of whichever spouse earned less.

However, if one spouse was incapable of self-care or was a full-time student, for the purpose of this ceiling, you may consider that he or she was "employed" with "earned income" of $200 a month if you are claiming the expenses of caring with one person, or $400 a month for two or more. (This assumed income does not have to be added to AGI to determine the allowable percentage to be applied to expenses.)

This special rule operates on a month-to-month basis. The assumption of earned income may be used only for those months in which the nonworking spouse either was incapable of self-care or a full-time student.

You may apply the rule to either spouse each month, but to only one spouse in any individual month. Therefore, at least one spouse must have been employed (or self-employed) each month with earned income at least equal to whichever of the two assumed amounts applies.

In some circumstances, you may have a tax option: The cost of nursing care for a disabled dependent may qualify either for this tax credit or as a Schedule A medical deduction. You cannot claim both the credit and the deduction for the same expense, but you may select whichever method gives you the larger tax benefit.

If you are using the zero bracket amount and not itemizing deductions, then you should, of course, take the tax credit. But if you itemize and already have enough medical expenses to exceed the 5 percent exclusion, then the choice depends on your tax bracket.

You should figure it out both ways to see which technique gives you the better tax break. Remember that if you decide to go the tax credit route, any qualifying expenses in excess of the $2,400/$4,800 limit still may be added to medical expenses on Schedule A. Energy Credit

This is the last year you may claim the tax credit for energy-related expenses; the credit initiated in 1978 to encourage the installation of energy-saving measures expired on Dec. 31. But you still can qualify for a credit on your 1985 tax return for two types of energy credits: energy conservation measures and renewable-energy sources.

Energy conservation includes insulation; storm windows and doors; a more efficient replacement burner for your furnace or an electronic ignition system in place of an existing gas pilot (but not a new furnace or boiler); caulking and weatherstripping; an automatic setback thermostat, or an energy-cost display meter.

A renewable energy source might be a solar, geothermal or wind system to generate energy or to provide hot water, heat or air conditioning.

Each type is subject to its own rules and restrictions, but there are two requirements applicable to both:

*The equipment must be for your principal residence: a single-family house, a condominium or cooperative, a mobile home or houseboat, even a rented house or apartment.

*It must be a new installation; that is, you must be the first to use it.

An energy conservation measure must have an expected life of at least three years, and the residence itself must have been substantially completed by April 19, 1977. A renewable energy source must be expected to last a minimum of five years.

The credit for energy-conservation measures is 15 percent of expenditures up to $2,000, equal to a "lifetime" ceiling of $300 on cumulative credits for the entire period through 1985.

The cumulative ceiling on the credit for energy-source installations is $4,000, based on an allowable credit of 40 percent of up to $10,000 in expenditures during the entire period.

The residential energy credit is claimed on Form 5695, which, incidentally, contains an error. The statement, "If less than $10, enter zero," on line 29, is incorrect and should be disregarded.