In 2011, use tax deductions to beef up income
In reviewing finances for 2011, your choices may seem limited. Investments might fail to provide adequate return or appear risky. Cost-cutting offers opportunities but can only be taken so far.
In this environment, tax deductions take on added significance. Many Americans do not realize how far that might go. Kiplinger, one of the top financial news sources, provides some insight. In its online version for December 2010 at www.kiplinger.com, Kevin McCormally, its editorial director, lists “The Most-Overlooked Tax Deductions.”
According to McCormally, 46 million Americans itemize deductions on their Form 1040s with their annual personal income tax return. Their claims add up to nearly $1,000,000,000,000 — $1 trillion. The number is staggering.
While the source lists 19 deductions, here is a “cheat sheet” for some of those most likely to affect Pennsylvania residents.
1. Out-of-pocket charitable contributions. Contributions to United Way deducted from payroll and regular weekly or monthly contributions to church or religious organizations might not be missed but other smaller contributions might be. If you drive for charitable purposes or act as a volunteer for a nonprofit, consider deducting mileage at 14 cents per mile. If you contribute to any charity more than $250, get a receipt from the organization.
2. Know when to deduct job-hunting costs. With so many Americans looking for work, deductibility of job-search expenses becomes important. First, the search must be for a job in “your current occupation.” Think of your current occupation in broad terms such as “sales,” for instance, instead of “sales of computer hardware.”
While looking for a job in your field can open the way to many tax deductions, unfortunately, searching for a first job or searching for a job when you have not tried to work in a long time does not count. Also, the total of your itemized deductions must exceed 2 percent of your adjusted gross income. If you do qualify, then deductions can include food, lodging and transportation when your search takes you away from home, and also cab fares, employment agency fees, costs of printing resumes, business cards, postage, and advertising.
3. Although job-hunting expenses for a first job are not deductible, moving expenses following a successful job search are deductible. The job must be at least 50 miles from home. For those who qualify, the cost of transporting yourself and your belongings to the new location plus mileage at 16.5 cents per mile, parking fees and tolls are deductible.
4. For those who are in the military reserves, travel expenses may be deductible for travel to drills or meetings. The travel must be at least overnight and at least 100 miles from home. The deduction can be used even if you do not itemize.
5. Those who are self-employed should know that they can not only deduct health insurance premiums for themselves and their family in computing adjusted gross income but also, for the 2010 tax year, deduct the cost of health insurance premiums when figuring their self-employment tax on Schedule SE. Get help if you need to in determining how to run the calculation.
6. Parents should not forget child-care credits where entitled. A credit, unlike a deduction, is taken directly off taxes and is more valuable than a deduction.
7. Do not forget to deduct state taxes that were paid earlier in the year for the prior year. You may have paid for the prior year’s (2009) state taxes in 2010. These can be included as deductions for 2010.
8. Mortgage interest deductions should not be ignored including interest deductions in refinancings. Again, if you are not sure how to do it, get help.
9. College tuition and related expenses may provide the basis for a deduction under the American Opportunity Credit. It is good for up to $2,500 and depends on the income of the person claiming the deduction. Check for details.
10. For those who made energy-saving improvements to their homes, a tax credit equal to 30 percent of the cost might be taken up to a maximum of $1,500. Windows and doors are obvious improvements that can be handled by the professionals from garage door repair bellaire but do not forget water heaters, high-efficiency furnaces and central air-conditioning or solar hot water heaters about which, you can discover more from here, geothermal heat pumps and wind turbines. If you are looking for window covering products like roller shades and aluminum blinders, then you can look at this site to get custom window treatments that suit your needs.
11. If you bought a home earlier in 2010, you may qualify for the major home-buyer credit that was advertised extensively in the media and by Realtors. Do not forget to take this credit.
These are just some ideas. Take time with your taxes and you will probably find more.
For more, listen to “50+ Planning Ahead,” with Janet Colliton, Colliton Law Associates, and Phil McFadden, Home Instead Senior Care. at 4:30 p.m. on Wednesday, Jan. 5, and every Wednesday to WCHE 1520.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.