Top 10 IRS Tax Deductions and Tax Credits in 2011

Top 10 IRS Tax Deductions and Tax Credits in 2011

The 2012 April tax season that accounts for the 2011 tax year may seem far and most taxpayers may not be overly concerned with their taxes at the moment. However, being conscious of tax matters as the year goes by ensures that you not only have a smooth tax time as you draw close to the next tax season, but also capitalize on the obtainable tax opportunities. The major way in which taxpayers get tax savings from their returns is by tax credits and tax deductions. Below are 10 of the most shared tax deductions and credits that you may qualify for in the 2011 tax year.

1. Charity Donations

Donations are the easiest and one of the most shared tax relief. The tax code allows for a tax deduction of donations made to any qualifying tax-exempt organization. In 2011, the IRS released a list of the organizations that had lost their tax exempt position due to non compliance with various regulations. A taxpayer consequently, needs to verify that an organization is qualified as tax exempt to be able to qualify for the tax deduction. For donations above $250.00, you will need an acknowledgment from the organization that you have donated to as sustain documentation for the tax deduction. For non-cash contributions above $500.00, you will need to file Form 8283, “Non-cash Charitable Contributions Form”. Non-cash items that are above a given threshold will also require a valuation from a qualified appraiser.

2. Child Care Tax Credit

The Child Care Credit is given to parents or guardians who use money to have their children or qualifying dependents taken care of while they are out working. The credit can be claimed for regular child care or already for a summer day-camp. The amount to claim depends on one’s income and the number of children. The allowed credit ranges from 20% to 35% of one’s income. The credit also has an annual cap of $3,000.00 for a single child and $6,000.00 for more than one child.

3. Mortgage Interest

The mortgage interest deduction allows homeowners who are paying for a mortgage to claim a deduction on the mortgage interest paid on their dominant residence and qualifying second home. Various rules govern the qualification of dominant residence and second home and you will need to ensure that your homes qualify before deducting these expenses. Besides mortgage interest, you can also deduct the real estate taxes paid on non-business character.

4. Medical Expenses

Various medical expenses can be tax deductible for taxpayers who choose to itemize their deductions. The qualifying deductions are unprotected to a threshold of the excess of 7.5% of one’s modificated Gross Income. The expenses include travel related to medical care, out-of-pocket medical expenses, and health insurance premiums. For out-of-pocket expenses, there are various items that qualify and you can get a comprehensive list of qualifying medical expenses from the IRS website.

5. Health Savings Account

Contributions to a Health Savings Account (HSA) are also tax deductible. However, the HSA must be a qualify one for the tax deduction. Interests earned from the account are also not taxable. However, for a HSA to qualify, it must be a high-deductible health plan.

6. Work Related Expenses

There are various work related expenses that are tax deductible. Various training expenses, business travel (excluding travel from home to the office), qualifying work uniforms and work clothing, and qualifying entertainment expenses for possible clients are tax deductible, unprotected to various IRS rules. These expenses only qualify for deductions if they were not reimbursed by the employer.

7. Home Offices

For people who work from their homes, they can deduct various home expenses that are related to their home office. You will need to determine and apportion the home expenses that are credited to the home office to deduct the costs. The expenses include rent, insurance, mortgage, repairs and maintenance, other related utilities, and depreciation.

8. Qualifying Retirement Savings

Contributions to various qualifying retirement accounts such as 401(k) accounts and IRAs are also tax deductible. For the 2011 tax year, the cap on the contributions to these retirement accounts is $16,500.00. For senior citizens above the age of 50, the tax exempt limit goes up to $37,500.00.

9. Education Expenses

The tax code also allows for tax deduction of various education-related expenses. For the 2011 tax year, there is a cap of $4,000.00 for deductions on tuition-related expenses. You can also claim the American Opportunity Tax Credit if you qualify for it.

10. Student Loans

Interest paid on student loans is also tax deductible unprotected to an annual cap of $2,500.00. This applies only to the interest and not the principal. However, to qualify for this tax deduction, you must be earning an income of less than $70,000.00 for single taxpayers or $145,000.00 for married taxpayers who file their taxes jointly.

leave your comment