The 2012 income tax filing season is here and your important tax documents should be arriving in the mail soon. If you are ahead of the game and are merely waiting on your W-2 and other documents to complete your tax return, make your wait time more productive by knowing all the possible deductions available to you and whether you will gain by itemizing your deductions. Remember that the most common tax deductions, such as the one for mortgage interest, are limited to taxpayers who itemize on their tax returns.
Itemizing is only possible if your total deductions exceed the standard deduction that non-itemizers can claim. If you are either single or married but filing separately your standard deduction will be approximately $5,800.00.If you are married and you file your returns jointly or have a dependent then your standard deduction will increase to $11,600.00. If you claim head of household your standard deduction will then be $8,500.00. Your standard deduction may also be decreased if your annual income exceeds a certain amount.
For those of you who will itemize, here is a list of the most common tax deductions listed in no specific order – which deductions apply to you will depend on your personal tax situation:
1. Charitable contributions
If you have been charitable in 2011, and have saved your receipts, you are eligible to include them. On the other hand, if you donated some items from your home to Salvation Army or a similar charity, the value of your donated items is also deductible if you got a written receipt. With noncash charitable contributions, the rule is: no receipt equals no deduction if you get audited.
2. Points on refinancing
2011 was a big refinance year for many homeowners. If you refinanced your home in 2011, any points you paid to refinance can be deducted on a monthly basis over the life of the new loan. As an example, if you refinanced your mortgage on March 1, 2011, for a 20-year term, 10 out of 240 months will have passed by Dec. 31, 2011. If you paid $1,200 in points, you can write off $50 for 2011. And don’t forget that you can deduct $60 next year and continue deducting on until February 2021!
3. State and Local Taxes
State and local taxes for which you have been assessed are deductible. Consult your tax professional or use a tax software for more details.
4. Health insurance premiums
Health insurance premiums that you pay are deductible. This may also include some long-term-care premiums based on your age and Medicare premiums you pay, and are potentially deductible. Do remember that medical expenses have to exceed 7.5% of your adjusted gross income before they give you any tax benefit.
5. Retirement tax credit
The retirement tax credit is a good one for moderate income and low income taxpayers because it is a great incentive to save for retirement. And a credit reduces your tax bill dollar for dollar, so if you make a contribution to your retirement account, that money isn’t taxed now plus you get a deduction off your income. You can deduct as much as $5,000 ($6,000 if you’re 50 or older) in contributions to an IRA. See the IRS article for more on planning.
6. Energy Savings Home Improvement Credit
Energy credits are available for homeowners who installed alternative energy equipment, such as solar water heaters, geothermal heat pumps and wind turbines. If so, you 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.
7. Child care credit
A credit reduces your tax bill dollar for dollar. Publication 503 explains the tests you must meet to claim the credit for child and dependent care expenses. It explains how to figure and claim the credit.
8. Education expenses
Any interest that you have paid on your student loan for 2011 may be deducted, as well as some additional tuition related expenses.
9. Investment and tax expenses
Even tax-planning and investment expenses are deductible because they fall under miscellaneous itemized expenses. With that said, the total of these expenses must exceed 2% of your adjusted gross income before you get any tax benefit. These expenses could include your employee business expenses, tax preparation fees and even the portion of your legal or accounting expenses that relate to tax planning. Some examples would be the tax aspects of alimony, child support, estate planning etc.. When it comes to investment expenses, most of us remember our safe deposit fees, but if you paid any annual fees to a broker or other investment fees, those can also qualify.
10. Casualty deductions
2011 was a year of many natural calamities. If the president declared your area as a disaster area, you may be able to claim your loss on either your 2011 or 2010 return. Refer to the IRS site for more specific information.
Once again, remember that if you take the standard deduction, you cannot qualify for the above deductions. Now is the time to determine which option is most beneficial for you. IRS Publication 17 is a great resource for individuals. If you cannot make the decision for yourself, consult a tax professional or have your return reviewed by a tax professional to get the best possible tax refund.