AUTOMOBILE

 

Car Expenses

You may deduct the mileage on a car that is used for business purposes. You can choose to deduct the mileage expense through the standard mileage rate or deduct the expenses of maintaining the vehicle. With the actual expenses option, you may deduct the depreciation, oil, gas, tires, insurance, licenses, repairs, etc. Once you choose a deduction based on actual expenses, you must deduct based on when you first start using the car for business and you cannot change to the standard mileage rate deduction.

Business Mileage

With car used for business purposes, you may deduct a standard mileage rate for unreimbursed mileage. Prior to July 1, the 2011 standard mileage rate is 51 cents per mile. The rate after June 30 rises to 55.5 cents per mile. It is important to keep accurate log of your mileage.

Fuel Cell Vehicles

The maximum credit base for fuel cell passenger automobiles and light trucks for tax years 2010 through 2014 is $4,000.

Other Mileage

If you itemize, there are several other types of deductible mileage in addition to business mileage. For instance, you can deduct mileage at 14 cents a mile for charity and volunteer work with a qualified nonprofit organization. Additionally, mileage to and from a doctor or dentist office is deductible at 19 cents per mile before July 1 and 23.5 cents per mile after June 30, 2011.

General Passenger Automobile Limits

A passenger automobile is considered any four-wheeled vehicle that has an unloaded gross vehicle weight of 6,000 pounds or less and is made primarily for use on public roads. The 2011 depreciation limit for most passenger automobiles is $3,060. However, if the business use is less than 100%, this limit must be reduced.

Passenger Automobile Limits – Trucks and Vans

The 2011 depreciation limit for trucks, vans and certain sport utility vehicles used as passenger automobiles is $3,260. If the business use is less than 100%, this limit must be reduced.

Qualified Plug-in Electronic Vehicles

Plug-in electric motor vehicles are considered qualified when they are propelled by an electric motor which draws electricity from a battery with a capacity of 4-kilowatt hours or more and is

recharged from an external source of electricity. The vehicle must be new, with no previous owner and must be made by a manufacturer. It must also have a gross vehicle rating of less 14,000 lbs. The credit is limited to 10% of the purchase price up to $2,500.

Section 179 Expensing – Sport Utility Vehicles

For certain sport utility vehicles weighing more than 6,000 and less than 14,000 pounds, the maximum section 179 deduction is limited to $25,000.

Vehicle Credits

Through the Alternative Motor Vehicle Credit, you may be eligible for a nonrefundable credit for fuel cell vehicles. You must be the original owner of the vehicle and it must be for your own use. Additionally, vehicles must be made by a manufacturer to qualify for this credit. Passenger automobiles and light trucks are covered, although different rules apply for heavier vehicles. See the IRS website for a complete list of qualifying vehicles.

BUSINESS JOB RELATED

 

Computer and Cellular Phone

If you have a computer or cellular phone and use it primarily for business, you may be eligible for a depreciation deduction. The phone or computer must be required as a condition of your employment, and must be used for the convenience of your employer. It is important to keep an accurate record of the personal and business use of the phone or computer to determine the percentage of business use.

Entertainment

You may be able to deduct 50% of the amount for entertaining costs incurred for business reasons. The expense must be considered necessary or related to your profession.

Job-Related Expenses

There are multiple job-related expenses that may be deducted, including union dues, job related reading material, cost and upkeep of work clothes and uniforms and the depreciation of qualifying tools. Job-related expenses are claimed as miscellaneous deductions in the itemized deduction section and are subject to the 2% of adjusted gross income floor.

Moving Expenses

You may be able to deduct the cost of moving your household goods and your traveling expenses if you moved at least 50 miles in the last year and your move was related to your job. The standard mileage rate for moving is 19 cents per mile prior to July 1 and 23.5 cents per mile after June 30

National Guard and Reserve Members

You can take a deduction for related travel expenses as an adjustment to income if you are a member of the National Guard or Reserves. You must travel at least 100 miles away from home to perform your service (such as for a drill or a meeting). Expenses include overnight accommodation, meals and transportation. You don't have to itemize your deductions to claim this, however, the amount of the allowable expenses cannot exceed the amount the federal government pays its employees for travel expenses.

General Section 179 Expensing

You may deduct the cost on the purchase of certain qualifying equipment, by making a section 179 expense deduction. The maximum section 179 for the year is $500,000, but certain qualified leasehold improvements may be eligible for up to $250,000. However, if the qualifying property placed in service exceeds $2 million, then the deduction is phased out.

Self Employed Health Insurance

You may deduct up to 100% of your medical insurance costs that cover yourself, your spouse, and your dependents as an adjustment to income as long as you are self employed. To qualify, neither you nor your spouse must be eligible for employer-subsidized health plan coverage.

Start-Up and Organizational Costs

If you have a start-up, you may be able to claim a deduction of up to $5,000 for organizational costs. The deduction is reduced by the amount of the start-up costs exceeding $50,000. You should amortize the remaining costs over 15 years, if you are unable to deduct all your costs in the first year the business begins.

Tip Income – Allocated Tips

If you receive tip income through work with a food or beverage establishment, your employer may be required to allocate an amount of tips to you on your Form W-2. If the amount of tips you reported to him is below the IRS required minimum percentage of gross sales, your employer must allocate tips. You will be required to include the allocated tip amount in your income and also pay Social Security and Medicare tax on them. The difference is called allocated tips and is in box 8 of Form W-2.

Tip Income- Record of Tips

All tips must be reported as wages on Form 1040. You should also keep a daily record of your tips and submit a written report to your employer monthly.

Travel Expenses

If you must conduct business away from your tax home, you may be able to deduct business travel expenses. Lodging, transportation, dry cleaning and telephone expenses are some of the deductible expenses offered. Meals are only 50% deductible, unless you are subject to the Department of Transportation hours of service limits, in which case, you may be able to deduct 80% of your meal expenses.

Unemployment Compensation

You are required to report all unemployment compensation as taxable income however; you may choose to have tax withheld from any unemployment compensation you receive.

CHANGE OF ADDRESS

 

Change of Address

Ensure that the IRS has up-to-date information, by completing Form 8822, Change of Address. Failure to inform the IRS about an official change of address can cause problems down the road if they try to contact you.

CHILD DEPENDENT

 

Additional Child Tax Credit – Refundable Credit

You may be entitled to receive all or part of your remaining Child Tax Credit as a refundable Additional Child Tax Credit if you receive less than the maximum $1,000 per qualifying child, because it is limited to your tax liability.

Adoption Credit

Qualified adoption expenses may allow you to take a credit for up to $13,360 per child. However, the credit begins to phase out if your modified adjusted gross income is over $185,210. You do not qualify for the credit if your modified adjusted gross income is $225,210 or more. The credit is refundable for the previous year as long as you include a copy of the final adoption papers, or papers from a placement agency stating that the adoption process is legitimate. You may not e-file your tax return with this option.

Child and Dependent Care – Child Care Expenses

You may be able to claim a child care credit if you are a working parent, were working or are currently looking for work. Only children under the age of 13 or dependents unable to care for themselves, qualify for this credit. depending on your adjusted gross income, the credit caps as $1,050 for one qualifying child or $2,100 for more than one child.

Child and Dependent Care – In-Home Child Care

If you pay for someone to come into your home and provide child care while you work, then you may be required to pay taxes for that person as an employer. You would not be considered their employer if the caregiver provides their services in their own home.

Child and Dependent Care – Provider Identification

In order to claim a credit for child care expenses as a working parent, you must provide the IRS with the care provider's name, address, and taxpayer identification number (TIN). This can be a Social Security number or an employer identification number (EIN).

Child and Dependent Care – Types of Provider Identification

For a daycare, taxpayer identification number (TIN) is also their employer identification number (EIN). If the provider is an individual, the TIN is usually the Social Security number. Tax-exempt may be used if the care provider is a non-profit or church group and has no EIN.

Child and Dependent Care Credit – Combat Pay

Active duty military in a combat zone can calculate their earned income in two different ways for the credit for Child and Dependent Care Expenses. You can choose whether or not to include combat pay as earned income and this calculation affects how much of your dependent care expenses are eligible. You should always test both ways before you file in order to determine which one is most advantageous.

Child Support

Child support is not considered income for the recipient or a deduction for the payer. The parent who lives with the child for more than half the year is considered the custodial parent. A signed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, must be included in the noncustodial parent's tax return in order to claim a dependency exemption.

Child Tax Credit – Combat Pay

When calculating your federal income tax, combat pay is not included as income, but may be included as earned income when calculating the Additional Child Tax Credit. This may result in a higher credit for those with a low taxable income.

Child Tax Credit – Qualifying Child

You may qualify for a child tax credit of up to $1,000 on every child in your home under the age of 17. Biological children, adopted children, foster children, eligible foster children or descendents, siblings and stepsiblings all qualify for the credit. You must be the custodial parent and the child must have resided with you for more than half the year. They must be claimed as dependents and must not have provided more than half of their own support. Additionally, the child must be a U.S. citizen and be a resident for some part of the year.

Children's Investment Income

If your child under 18 has an investment income, totaling more than $1,900, the amount may be taxed at the parent's rate. The child may file Form 8615, Tax for Certain Children Who Have Investment Income of More than $1,900, or you may be able to file Form 8814, Parent's Election to Report Child's Interest and Dividends, to report your child's income on your return.

EDUCATION

 

Coverdell Education Savings Account (Education IRA's)

Coverdell ESA, an education savings account, can be established for a child under the age of 18. As long as certain income limitations are met, any individual (including the child) can contribute to the account during the year. Contributions per child are limited to $2,000 per year. Withdrawals are tax-free when used to pay the child's education costs (i.e. elementary school, secondary school, or a post-secondary school such as a college).

Education Expenses- Tuition Payment Verification

Students attending eligible higher education institutions may be challenged to provide proof of paid educational expenses. Official receipts from the educational institution as well as cancelled checks or bank statements showing the amount actually paid for tuition and fees are all acceptable forms of proof. Save a copy of the billing documents that break down the charges individually if the above proof includes amounts for charges other than tuition and fees.

Educator Expenses- Deduction

If you have worked at least 900 hours during a school year as an elementary or secondary school teacher, instructor, counselor, principal, or aide, there are multiple associated costs you may deduct. For instance, books, supplies, computer equipment (including software and services) and other classroom materials all qualify. Up to $250 of these expenses may be deducted directly against your income, without itemizing deduction. Any remaining expenses are considered a miscellaneous itemized deduction on Schdedule A and are subject to the 2% of adjusted gross income limit.

Employer Provided Educational Assistance

If your employer provides educational assistance, you may be able to exclude up to $5,250 on your return. This includes undergraduate and graduate courses.

Lifetime Learning Credit

Qualified tuition and related expenses for post-secondary education may be eligible for a nonrefundable tax credit. This credit allows 10% of the qualified tuition, fees, and expenses you, your spouse, or a dependent paid. You do not have to be a full time student, in a degree program, or in the first four years of post-secondary education to qualify however, the maximum credit allowed per return is $2,000.

Qualified Tuition Program

You may prepay a student's college tuition or contribute to a higher education savings account through the Qualified Tuition Program (QTP). While the contributions are not tax deductible, distributions will be tax-free as long as they are used to pay for qualified higher education expenses.

Student Loan Interest

Qualified student loans may be eligible for a deduction of up to $2,500 of the interest paid per year. You can only claim the deduction as long as no one is claiming you as a dependent. If you earn more than $60,000 of income for a single person or $120,000 for a married couple filing a joint return, you will be subject to a phase out. You do not need to itemize to claim this interest.

Tuition and Fees Deduction

You may be eligible to claim a tax deduction for qualified higher education expenses if you are unable to claim the American Opportunity or Lifetime Learning Credits. A deduction of up to $4,000 for qualified tuition and related expenses may be taken as an adjustment to income. You do not have to itemize in order to claim this deduction.

ESTATE AND GIFT TAXES

 

Estate and Gift Taxes

You can generally give money gifts up to $13,000 per year without any tax consequences. If you exceed this amount, then it must be reported as a gift tax return.

FILING

 

Electronic Filing

Electronic filing, also known as e-file allows the taxpayer to file immediately, without filling out paperwork by hand. It reduces both the time it takes to receive your refund and also helps eliminate common mathematical errors. Everyone included on the return must have a valid Taxpayer Identification Number (TIN) in order to qualify for this service.

Extensions – Electronic Filing

The IRS allows you to electronically file an extension application via the Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, through April 17, 2012. Filing an extension allows you to postpone the filing date of your return until October 15, 2012.

Extensions - Filing

If you need more time to file, you may postpone the deadline by filing an extension. October 15, 2012. Although you must still pay any taxes you may owe by April 17 of the tax year, you will have until October 15 to file. If you do not pay the tax due you will be subject to penalty and interest charges. Complete IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to file for an automatic six-month extension.

FILING STATUS

 

Filing Status – Annulled Marriages

With an official annulment, you are legally considered unmarried for the current and any previous tax years. Tax returns for all of these years must be amended and there is a three year statute of limitations to show a change in your marital status.

Filing Status – End of Year

Whether you are married or unmarried on December 31 of a tax year determines your filing status. If you and your spouse are separated and meet certain criteria, you may be considered unmarried for the tax year. If a divorce decree is final by the last day of the year, you are considered unmarried, for tax purposes.

Filing Status – Head of Household

You may claim the Head of Household filing status if you are the main provider of the household that must consist of another individual. The benefits of this status included higher standard deductions, potential lower tax bracket eligibility and a possible Earned Income Credit. Single, separated and divorced individuals may all qualify for Head of Household status.

Filing Status – Married Filing Jointly and Separately

Married couples may choose to file jointly or separately on their tax return. You must report your combined income on a joint return and deduct your combined allowable deductions. Even if only one spouse earns income, you may still file jointly. It is usually most advantageous to file jointly, however there are instances when filing separately is better, such as when your incomes are about the same or if you prefer to be responsible only for your own tax liability. Always calculate your return both ways to ensure that you pay the lowest tax.

IRA RETIREMENT

 

Individual Retirement Arrangement (IRA) – Early Withdrawal

You may withdraw up to $10,000 in your lifetime from an IRA without the 10% tax if you are buying a first home for yourself, your children, or your grandchildren. Additionally, you may pay higher education expenses for the IRA owner, spouse, child, or grandchild without penalty.

Individual Retirement Arrangement (IRA) – Contributions

You can contribute up to $5,000 to your own and your spouse's IRA (if married filing jointly). In Individuals over the age of 50, you can contribute an additional 1,000 as a "catch up" contribution.

Individual Retirement Arrangement (IRA) – Rollover

If you suffer from a disaster, casualty or other event beyond your control, The IRS may waive the 60-day requirement for rollovers from pensions.

Retirement Savings Contribution Credit

You may receive credit for contributing to an employer's elective deferral plan or your IRAs. The credit will be a percentage (50%, 20%, or 10%) of up to $2,000 and you must be at least 18 years old. You may not be claimed as a dependent on another's return. The credit amount will be reduced by any distribution from a retirement plan any time in the preceding two tax years.

Roth 401(k)

You may designate a portion of your elective deferral to be treated as a Roth contribution, if you are eligible to participate in a 401(k) or 403(b) plan through your employer. Distributions from these accounts will be tax-free like a Roth IRA and will be treated as regular income on Form W-2.

Roth IRA

You may contribute up to $5,000 to a Roth IRA if you are under the age of 50. Individuals 50 or older are allowed an additional "catch-up" contribution of $1,000. Unlike the traditional IRA, Roth IRA contributions are not deductible, but the earnings are not taxable when withdrawn.

ITEMIZED DEDUCTIONS

 

Itemized Deductions - Limits

There is no current maximum income limit for itemizing deductions through this year.

LOTTERY

 

Deducting the Cost of Lottery Tickets

If you have won money in a lottery, you can then deduct the cost of your losing tickets for the year as an itemized deduction (based on your lottery winnings). A husband and wife, filing jointly, can use their qualified combined losses to offset their combined winnings.

Sharing a Winning Lottery Ticket

If you have lottery winnings as part of a group, federal taxes should have been withheld by the lottery before payout. However, Form 5754, Statement by Persons Receiving Gambling Winnings, alleviates the problem of reporting multiple ownership of lottery tickets. The person who actually receives the winnings prepares the form and identifies all those who are entitled to a share.

MEDICAL AND HEALTH

 

Social Security and Medicare Wages and Taxes

The total wage limit for amounts subject to Social Security tax is $106,800 while total Social Security taxes are $4,485.60. Social Security taxes withheld from your paycheck was 10.4% if you are self employed and 4.2% otherwise. There is no limit for wages subject to Medicare tax.

Health Savings Account - Deduction

You may be able to take a deduction as an adjustment to income if you made contributions to a health savings account (HSA). If you are covered by a high deductible health plan you are eligible to establish and contribute to an HSA. Amounts contributed to an HSA gain interest tax-free, just like an IRA. Unused amounts are portable and remain available for later years with no time limits.

Itemized Deductions – Medical Expenses

Taxpayers are allowed to deduct unreimbursed medical and dental expenses for themselves and family members if you itemize your deductions. You can deduct the amount that is more than 7.5% of your adjusted gross income.

Itemized Deductions – Medical Expenses, Long Term Care

Qualified long-term care services can be included as a deductible medical expense. This includes premiums for qualified long-term care insurance. This deduction is subject to the 7.5% of the adjusted gross income limit as well as certain age limitations).

Itemized Deductions – Medical Expenses, Maximize your Deductions

If you choose to itemize your deductions, you may deduct any medical expenses over 7.5% of your adjusted gross income. Carefully planning non-emergency medical care, such as routine check-ups, to fall within the same year, can yield more deductions for you.

Itemized Deductions – Medical Expenses, Overlooked Deductions

There are multiple medical deductions that often get overlooked when itemizing. For instance, Hearing aids, contact lenses, eyeglasses, physical therapy, lab tests and x-rays are all considered deductible. You may currently deduct mileage to and from a medical office at 19 cents per mile. You can also deduct bus and taxi costs incurred.

Itemized Deductions – Medical Expenses, Weight Control Treatments

Obesity is recognized by the IRS as a medical condition. If your physician diagnoses obesity and recommends participation in a weight loss program, you may be able to deduct it as a medical expense on Schedule A, Itemized Deductions.

MISCELLANEOUS EXPENSES

 

Itemized Deductions – Miscellaneous Expenses

Miscellaneous deductions include job hunting and travel, union dues, tax preparation and safety deposit box fees. Appraisal fees for casualties, charitable contributions, theft losses and depreciation on computers used for investments, are also types of miscellaneous deductions. You may also deduct hobby expenses and legal fees. You can deduct the amount of miscellaneous expenses over 2% of your adjusted gross income, if you itemize.

REAL ESTATE PROPERTY

 

Basis of Property – Gains and Losses

The basis is usually the cost of a purchased property. You may also include property sales tax, commissions, and freight charges. Keep detailed records of all items that affect the basis of the property to help you to determine if you have a gain or loss when the item is sold.

First Time Homebuyers – Tax Credit

If you qualified for a First-Time Homebuyer credit in 2008 (10% of the purchase price of the home with a maximum of $7,500), you must repay 1/15th of the credit each year beginning with 2010 and ending 2025. If you qualified for the credit in 2009 (maximum $8000) and 2010 and the home is no longer your main home, you may have to repay the credit, however, if the home is your main home you do not need to repay the 2009 or 2010 credit.

Legal Fees for Unlawful Discrimination Claims

If you have incurred costs associated with a claim of unlawful discrimination, you may be entitled to an adjustment to income. This includes attorney fees and court costs. This adjustment includes any claim made under section 1862(b)(3)(A) of the Social Security Act (Medicare fraud claim). You do not have to itemize to claim these expenses; however the deduction is based on the amount of income you receive.

Itemized Deductions – Mortgage Insurance Premium Deduction

Mortgage insurance premiums are allowed as deductible interest on Schedule A, Itemized Deductions. Policies started before January 1, 2012, for less than $1 million of acquisition indebtedness are deductible as mortgage interest on Schedule A. Taxpayers with adjusted gross income exceeding $100,000 will be phased out.

Past Tax Returns – Getting Copies

When purchasing a home, you may be asked to provide copies of several prior years' tax returns. If you cannot locate them, you can file Form 4506, Request for Copy of Tax Return, with the IRS. The IRS will mail you copies of your past returns for a fee, but this process can take up to 60 calendar days.

Real Estate – Closing Papers

Once you close on a new home, make sure you keep all of your closing papers in a safe place. Form HUD-1 to help determine the points and other closing costs you can deduct on your tax return when it is time to file.

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