2011 Income Tax Tips
With tax season quickly approaching, many taxpayers are scrambling to figure out which tax deductions and tax credits they might be eligible to claim for the previous tax year. The common goal is to pay as little in taxes as possible. The following is a list of the most common tax deductions and credits for the 2011 tax year. Check them out before filing your taxes to maximize your tax savings for 2011.
Common Tax Deductions For 2011
Mortgage Interest: This is one of the best deductions to take. If you have a mortgage on your primary residential property, you can deduct the total amount of interest that you pay on your mortgage for 2011. Because mortgage interest payments can be substantial, taking this deduction can reduce your taxable income by thousands of dollars.
Contributions To Retirement Accounts: If you have an Individual Retirement Account (IRA), you can deduct all or a portion of your total contributions to the account. The actual amount you will be allowed to deduct will depend on the size of your contribution and the size of your income. It is important to note that you can continue to contribute to your IRA until the April tax deadline and all contributions will count towards your 2011 tax return.
Charitable Donations: You can deduct the value of most charitable donations that you made in 2011. In order to qualify for the deduction, the money or non-cash item must be donated to a charitable organization that is recognized by the IRS. Note that you will need to keep receipts from your donations as proof that money or non-cash items were actually donated. There are also special requirements for non-cash donations. (For more information on how to deduct charitable donations, see The Tax Value Of Charitable Donations.)
Education Expenses: There are several deductions available for the costs of higher education. For example, if you took out a loan to pay for your or a qualified dependent’s (e.g. your child) college education, you may be eligible to deduct the interest you pay on the loan. There is also a deduction available for the costs of tuition and fees paid to an undergraduate or graduate institution. (To learn more about tax deductions for education expenses, see 4 Tax Breaks For College Students.)
State Income Or Sales Tax: Uncle Sam allows you to deduct the amount of money you had to pay to your state for income or sales taxes. Note that you have to choose one of the two types of taxes to deduct. For many people, deducting the amount of state income taxes paid will yield a better tax benefit. However, if you live in a state with no income tax, deducting the state sales tax is the only option.
Common Tax Credits For 2011
Earned Income Tax Credit: The earned income tax credit (EITC) was created to help relieve the tax burden of working individuals and especially those with children. To qualify for the credit, you must meet income requirements. These requirements change based on your marital status and number of children. For example, if you made less than $40,964, have two qualifying children and did not file your taxes with a spouse, you are eligible for the EITC. For 2011, the maximum amount of the credit ranges from $464 for individuals with no qualifying children to $5,751 for individuals with three or more qualifying children. (For more information on how to qualify for the EITC, see Guidelines On How To Qualify For The Earned Income Tax Credit.)
Education Tax Credits: The American Opportunity Tax Credit (AOTC) and The Lifetime Learning Credit (LLC) are two tax credits that you can take advantage of if you pay for the costs of college education. The AOTC allows for a tax credit of up to $2,500 per year for study at an undergraduate institution for up to four years of study. The LLC allows for a tax credit for up to $2,000 per year for the costs of study at an undergraduate or graduate school. There is no limit on the number of years that this credit can be claimed. Note that both tax credits have income requirements that must be met.
Energy Tax Credits For Home Improvements: If you made energy efficient improvements to your home, you may be able to qualify for a tax credit. The Nonbusiness Energy Property Credit (NEPC) and The Residential Energy Efficient Property Credit (REEPC) are two such credits. The NEPC is geared towards minor home improvements (e.g. adding a biomass stove) while the REEPC is tailored for major improvements (e.g. putting solar panels on your roof). To learn more about these two credits, see How To Take Advantage Of Energy Tax Credits For Home Improvements.)
Child Tax Credit: If you have children, you can claim up to $1,000 per qualifying child. To qualify, your child must be under the age of 17, have lived with you for more than half of the year, be claimed by you as a dependent and be a US citizen, US national or US resident alien. Note that there are income requirements that must be met in order to claim this credit.
Child And Dependent Care Credit: If you pay for the costs of childcare for your child or a qualified dependent, you may qualify for this credit if you work or are actively looking for work. Generally, the child must be under the age of 13 in order to qualify. The credit can be up to 35 percent of the total childcare expense. The actual amount will depend on your income.
Adoption Tax Credit: If you adopted a child in 2011, you may be able to claim this credit to help offset the costs of the adoption. The maximum amount of the credit is $13,360. This credit is refundable which means you might receive a tax refund if your tax liability is smaller than the amount of the credit. There are income requirements that you must meet to qualify.
Before you sit down to do your taxes this year, make sure that you are up to speed on these tax credits and deductions. They could end up saving you thousands of dollars.