TAX TIPS

If you have young children – The Child Tax Credit (for children under age 17) remains at $1,000 per child (through 2012), with some income limitations.

If you have children in college - The American Opportunity Tax Credit was scheduled to expire for 2011, but was extended. You could qualify for up to a $2,500 tax credit, with 40% of it being refundable. Again, there are some income limitations.

Student Loan Interest – Extended through 2012. You could be eligible to deduct up to $2,500 from your income for interest you paid on student loans during the year.

Business Owners – You are being encouraged to invest in your business equipment with a special 100% first year expensing option through the end of 2011.

Energy Credits – You have one more year to take advantage of energy improvements to your home in 2011. A 10% credit (maximum of $500 credit) is offered for 2011. This replaces the 30% credit (maximum of $1,500) that was allowed for 2009 and 2010.

Married Taxpayers – You have been given another 2 years (through 2012) of relief from the marriage penalty. Before the year 2000 (temporary) tax cuts 2 married persons that both work and earn similar amounts of income would pay more in taxes than 2 single people with the same jobs. This, along with other tax cuts, was set to expire in 2010 but was extended to 2012.

If you work - You should have noticed an extra 2% on your paycheck for 2011. Social Security taxes were decreased from the normal 6.2% to 4.2% for all of 2011. Self-employed workers will also get a reduction in self-employment tax. This payroll tax cut is taking the place of the “Making Work Pay Credit” which you received on your tax return for 2009 and 2010.

If you were unemployed – You were included in the extended unemployment benefits through the end of 2011. With all of the tax breaks for businesses that are available, hopefully there will be more jobs available.

Stock Owners – You will have 2 more years (2011 and 2012) of lower tax rates for long term capital gains and qualified dividends.

Tax breaks that are set to expire on December 31, 2011 (unless Congress extends)

Teacher deduction of up to $250 for classroom supplies purchased
Sales Tax instead of state income tax deduction
Mortgage insurance premium deduction for your principle residence
Adjustment to income for post-secondary tuition
IRA proceeds as a direct charitable contribution

Ways to reduce income

Contribute more $ to pre-tax retirement accounts or traditional IRAs
Use flexible spending accounts for medical and daycare expenses
Start a (529) college plan
Rebalance your portfolio in order to take deductible losses

Ways to increase deductions and credits

Document your cash donations – receipts are required
Donate household items and clothing to a charity –document fair market value
Keep track of your volunteer activities and deduct out of pocket expenses. Log your miles for church, school and other non-profit organizations
Plan your vehicle donation – know the rules. To deduct fair market value the charity is required to either use it, donate it to the poor, or improve it.
Donate appreciated stocks to charity so that you don’t have to claim the gain by selling the stock.
If you are covered by a high deductible health plan and are under age 65 you can start a health savings account (HSA). It can be pre-tax if you are an employee or tax deductible if you are self employed.