14 Tax Deductions and Credits for 2011

Check Here Before You File Your Tax Return

This year you have two extra days to file your federal tax return. Since the regular day, April 15th falls on a Sunday and the following day is a holiday in the District of Columbia, you will have until midnight on Tuesday, April 17th to file. But if you have all your documents together, why wait; the IRS this year has promised faster processing of refunds if you file electronically.

Also, if you have had some unusual events in the last year, such as a foreclosure, short sale of your home or a refinance where some, or all of the principal, was forgiven, check with a tax professional. For example, when a mortgage lender forecloses on a home or accepts a short sale, any deficiency or loss the lender experiences on the loan principal will be added to the homeowner’s taxable income at the end of the year if the lender forgives the debt. According to the Internal Revenue Code, once a lender cancels what you owe them, you are required to report that debt as income because the duty to repay it no longer exists. The lender will notify the IRS of this forgiven amount. The homeowner is now responsible to pay the tax on the sum forgiven as if it were income. The Mortgage Forgiveness Debt Relief Act, passed in 2007, was designed to avoid the hardship that the additional tax would create for an already financially weary class of citizens, and allows taxpayers to exclude from taxable income the amount of debt that is forgiven or canceled by their lenders.

Let’s get started and don’t forget to ask a tax professional if you are unsure of a deduction or credit. This article is for general information and should not be relied upon as tax or legal advice.

Tax Deductions

1. Itemized deductions: For 2011 there is no itemized deduction limitation. With the lifting of this limitation it means that you can deduct the full amount of your itemized deductions in 2011. Two thirds of all taxpayers use the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes. You should always calculate your itemized deductions and compare them to the standard deduction to see which one is more valuable.

2. College Tuition: A family can deduct up to $4,000 of college tuition and fees in 2011, unless your adjusted gross income for single filers is between $65,001 and $80,000, or for joint filers between, $130,001 and $160,000. If you fall into that category you may only deduct up to $2,000.

3. Sales tax: If the amount of sales tax you paid in 2011 was greater than the state and local income taxes you paid you are eligible for a deduction. You can either write off your sales taxes or write off your income taxes. The IRS's maintains a

sales tax deduction estimator on their website at www.irs.gov if you failed to keep your receipts. Don’t forget to add in tax paid on large purchases, like vehicles, appliances or boats. Again, comparing the results of your calculation with your state and local tax to decide which option is best.

4. Medical expenses: You can deduct the portion of your 2011 medical expenses that exceed 7.5 percent of your adjusted gross income.

5. Mileage: If you are eligible to deduct mileage driven for work purposes don’t overlook this one. The IRS allowable mileage rates have increased for 2011. Here they are:

•Business mileage : 51 cents per mile from January 1 to June 30, and 55.5 cents per mile from July 1 to December 31, 2011;

• Medical and moving: 19 cents per mile from January 1 to June 30, and 23.5 cents per mile from July 1 to December 31, 2011; and

•Charitable purposes: 16 cents per mile.

6. Mortgage insurance deduction: If your adjusted gross income does not exceed $100,000 you may be permitted to claim qualified mortgage insurance as home mortgage interest. Make sure that the insurance was issued after 2006. For homeowners with adjusted gross income between $100,001 and $109,000, the deduction is reduced in 10% increments.

7. Miscellaneous deductions: There are various deductions such as tax preparation fees, job-hunting expenses, business car expenses and professional dues that you can claim if they are more than 2% of your adjusted gross income. Most of the inexpensive home tax software programs available are very good at finding these, but it is up to you to keep good records for the calculations.

Tax Credits

8. Child Tax Credit: You may take up to $1,000 as a tax credit for each qualifying child who was under the age of 17 at the end of 2011. This credit can be claimed in addition to the credit for child and dependent care expenses. 9. Child and Dependent Care Credit: This credit is for expenses you paid for the care of your kids under age 13 to enable you to work or to look for work in 2011. Depending on your income you receive a credit for between 20% and 35% of your child-care expenses, up to $6,000. 10.Earned Income Tax Credit: This credit is a real bonus because even if your credit exceeds your tax liability you don't lose the excess and you are entitled to receive the excess as a refund. Go to the IRS website and use their EITC calculator to determine whether you qualify for the credit. 11.Retirement Savings Contributions Credit: The federal government, in an attempt to encourage low income households to invest in their retirement, has provided this credit. If you are filing as an individual with income of up to $28,250 or jointly with incomes of up to $56,500 may qualify for a credit of up to $1,000 or up to $2,000. if filing jointly. Go to the IRS website and retrieve Form 8880 for the rules. 12.Energy and Appliance Tax Credit: Taxpayers that made energy-efficiency improvements to their homes in 2011, such as new windows, insulation, high efficiency furnaces, water heaters and air conditioning, are eligible for this one. The tax credit is 10% of the cost not to exceed $500.

College Expenses

There are two federal tax credits for the costs of higher education for yourself or your dependents listed just below.

To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. The taxpayer can choose to claim only one of these credits in a single tax year for each student.

13.The American Opportunity Tax Credit: A taxpayer can now get a "higher education tax credit" of $2,500 for the first four years of college for each student. The credit is calculated on 100% of the first $2,000 of tuition and related expenses, including books, paid during the tax year plus 25% of the next $2,000 of tuition and related expenses paid during the tax year.

14. Lifetime learning credit: This credit is generally available to taxpayers who earn less than $60,000 filing individually or $120,000 filing jointly. The credit can be up to $2,000 per eligible student and is available for all years of post-secondary education and for courses to acquire or improve job skills.