Jeff Schnepper of MSN Money reminds us A lot of taxpayers don't know they can save thousands of dollars with these tax breaks. Did you forget about any of these deductions and credits?
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Charity, as I hope everyone remembers, begins with a tax deduction. Now, let's say you emptied your closets and gave everything to Goodwill or a similar charity. The value of your donated items -- clothes, furniture, whatever -- is deductible. Get a written receipt. With noncash charitable contributions, the rule is simple: No receipt means no deduction if you get audited. Clothes and household goods must be in good or better condition to get the deduction.
If you've already dumped your old clothes in a Salvation Army box and walked away without a receipt, take the deduction anyway. You've legitimately made the contribution. You just may not be able to prove it in an audit. Starting with 2007 returns, the law has required a receipt or some sort of written confirmation for all charitable donations. Feel lucky? Play the audit lottery. You're still an honest person.
If you can, reconstruct as much as you can the list of items you donated and then figure out their market value. The easiest way is to go to a thrift store and check prices there. The Salvation Army also has value guides for donated items on its regional websites. (Or see the valuation guideline schedule on page 281 of the 2012 edition of my book "How to Pay Zero Taxes." Borrow it from a library if you don't want to buy it.)
And, of course, when you make your next donation, get that receipt.
A lot of taxpayers don't know they can save thousands of dollars with these tax breaks. Did you forget about any of these deductions and credits?
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With interest rates remaining so low over the past few years, lots of homes have been refinanced, sometimes more than once. Any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan. So if you refinanced your mortgage on June 1, 2011, for a 20-year term, seven out of 240 months will have passed before Dec. 31, 2011. If you paid $2,400 in points, you can write off $70 ($10 a month for seven months) for 2011.
You can write off $120 for 2012 and each year thereafter until the points have been deducted in full. The amount may not be huge, but every little bit helps. If you're looking to refinance, check today's best refinance rates
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Any health insurance premiums you pay, including some long-term-care premiums based on your age and Medicare premiums you pay, are potentially deductible. But you have to add these to your medical expense pot. Medical expenses have to exceed 7.5% of your adjusted gross income before they give you any tax benefit.
If you're self-employed and not covered by an employer-paid plan, though, you can deduct 100% your health insurance premiums (to the extent of your net income) "above the line." Above the line means the expense is included in adjusted gross income and doesn't get lumped in with itemized deductions. Not only do you not have to exceed the 7.5% floor, you don't even have to itemize.
The Small Business Jobs Act of 2010 changed the rules again. Now self-employed individuals can also deduct their health insurance premiums in computing their Social Security tax obligation.
A lot of taxpayers don't know they can save thousands of dollars with these tax breaks. Did you forget about any of these deductions and credits?
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If you're a qualified educator, you can get an above-the-line deduction of as much as $250 for materials you bought in 2011. That includes books, supplies and even computer equipment. You qualify if you're a kindergarten through grade 12 teacher, aide, instructor or principal. The best part? Since it's an above-the-line deduction, you don't have to itemize to get it.
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Credits are good because they are a dollar-for-dollar reduction in tax. This had been a 30% credit for skylights, outside doors, windows, pigmented roofs, high-efficiency furnaces, water heaters and central air-conditioning units installed in your primary residence in 2009 and 2010. This credit for most improvements had been capped at $1,500, but that was $1,500 off the cost of the improvements -- and you saved energy as well. For 2011, the credit was cut to 10%, up to $500 (reduced by any credit claimed since 2006), with a cap of $50 to $300 on fans, furnaces, water heaters, heat pumps and central air-conditioning, and a $200 cap on windows.
Homeowners who install alternative energy equipment, such as solar water heaters, geothermal heat pumps and wind turbines, can take a credit of 30% of the total cost, with no cap through 2016.
For a complete list of credits, see the IRS website.
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Many of us forget tax-planning and investment expenses because they fall under miscellaneous itemized expenses. Further, the total must exceed 2% of your adjusted gross income before you get any tax benefit.
Expenses to track include your employee business expenses, tax preparation fees and even the portion of your legal or accounting fees relating to tax planning. For example, in a divorce, the legal time spent relating to the tax aspects of alimony and child support would qualify. So too would the tax aspects of estate planning.
Many people shortchange themselves on the deduction of investment expenses. They remember the safety deposit box fees. But how about the annual fee paid your broker and any IRA fees you pay directly? You may remember the cost of your investment publications on subscriptions -- such as Forbes, Fortune and Barron's -- but how about the investment newspapers you buy off the newsstands? You keep track of your long-distance phone calls to your broker and investment adviser, but how about the mileage to go see them?
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2011 brought forest and range fires aplenty, as well as floods and huge snowstorms. If the president declared where you live to be a disaster area, you could claim your loss on either your 2011 or 2010 return. File Form 1040X (.pdf file) now for 2010 to get relief before April 2012, unless your marginal tax rates have gone up.
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The retirement tax credit is designed to give moderate- and low-income taxpayers an incentive to save for retirement. If you make a contribution to your retirement account, that money isn't taxed currently. So it's like you get a deduction off your income. In addition, you get a credit of as much as 50% of the first $2,000 invested. That's as much as a $1,000 reduction in your tax.
You get the $1,000 tax reduction as well as the $2,000 reduction in your income. That's a nice rate of return on a $2,000 investment. Moreover, if you qualify, you can deduct as much as $5,000 ($6,000 if you're 50 or older) in contributions to an IRA.
The tax credit disappears as your adjusted gross income increases. But singles with adjusted gross incomes up to $28,250 and joint filers with AGIs up to $56,500 qualify. The limit is $42,375 for heads of households.
Contributions to 401k's, 403b's, Simplified Employee Pension plans, traditional and even Roth IRAs qualify. See MSN Money's Retirement section for more on planning.
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