Tax Tips

1) Education Credits

The American Opportunity Credit can increase your refund by up to $2,500 per student. Also, you could qualify for a $1,000 refund even if you had zero income, but your parents cannot claim you as a dependent. The tax break is allowed the year you pay the tuition even if you used a student loan to pay for it.

2) Unemployment Compensation

Unemployment may or may not be taxable income on your federal and Indiana tax returns. Unemployment compensation could reduce your earned income credit. Be sure to consult your tax professional.

3) Home Energy Improvements

Tax credits are available for certain home energy improvements such as insulation, windows, doors, roofing, heating, air conditioning, and water heaters. The credit is 30% of the cost up to a maximum credit of $500. Taxpayers should obtain and keep the Manufacturer’s Certification statement. To qualify, the improvements must have been installed by Dec. 31, 2011.

3) IRS Notices

If you receive a notice from the IRS, don’t assume that it’s correct and automatically pay it. Many IRS notices just require you to give the IRS additional information to show why you do not owe the additional taxes or penalties. Always consult with your tax preparer when you receive IRS notices.

4) Gambling Winnings

If you win at the casino, you may receive a W-2G tax form that day. Be sure to keep it in a safe place until tax time and give it to your tax preparer. Save your losing lottery tickets, too. If you win, you can deduct the losses up to the amount of your winnings.

5) IRS Notices

If you receive a notice from the IRS, don’t assume that it’s correct and automatically pay it. Many IRS notices just require you to give the IRS additional information to show why you do not owe the additional taxes or penalties. Always consult with your tax preparer when you receive IRS notices.

6) Teachers

If you are a teacher who spent your own money for classroom supplies, you can take a deduction for up to $250 of those costs.

7) Indiana Deductions

Indiana allows the following deductions for renters and homeowners which can increase your Indiana refund by approximately $150:
   • Renter’s Deduction – you can deduct the first$3,000 you paid in rent
   • Property Taxes – you can deduct up to $2,500 of property taxes paid
File Indiana return on time or be fined up to $500 per year even if you have a refund

8) Military Personnel

Military personnel may elect to treat combat pay that is excluded from gross income as earned income in determining both eligibility for the earned income tax credit and the amount of that credit.

9) Making Work Pay Credit

The Making Work Pay Credit has expired – generally it improved your refund up to $400 if Single and $800 if a Joint return. The good news is that your tax refund should be the same as last year because your withholding was increased on Jan. 1, 2011 to offset the change.

10) Stock Sales

New this year:
• You must report your stock sale capital gains or losses on a new Form8949
• Your broker is required to send you Form 1099-B that shoes your cost basis and sales amount. Be careful, the cost basis could be wrong. If so, we will help you correct the information with the IRS so you will not be audited for this error.

11) Earned Income Credit (EIC)

Credit amounts increased for taxpayers with children.

In 2011 there is an increased EIC for taxpayers with one or more qualifying children. The EIC reduces the tax you owe and gives you a refund even if you do not owe any tax. In 2011 the maximum credit is:
• $5,751 for three or more qualifying children
• $5,112 for two qualifying children
• $3,094 for one qualifying child
• $464 if there are no qualifying children
• $518 on your Indiana Tax Return

In 2009 the definition of a qualifying child was revised. These provisions generally affect brothers, sisters, and grandparents.

12) Mortgage Insurance

In 2011, premiums that are paid or accrued for “qualified mortgage insurance” in connection with home acquisition debt on your residence are deductible as home mortgage interest.

13) ROTH Retirement Advantages

1. Never pay Federal or Indiana taxes on your earnings.
2. All distributions are tax and penalty free if you have had an account for at least 5 years or you reach age 59½
3. There are no longer required minimum distributions at age 70½ or older
4. There is no longer an income limitation for conversions and rollovers into ROTH-IRAs
5. Employers are not allowed to offer Roth-401(k) plans as an option for retirement savings at work
6. Withdrawals from inherited ROTH IRAs are usually tax-free
 

14) Standard Mileage Rates

The 2011 rate for business use of your vehicle is increased to 51¢ a mile for Jan. 1st to Jun. 30th and 55¢ for Jul. 1st to Dec. 31st.
Special Note: The IRS has increased the number of audits for taxpayers claiming business deductions. It’s extremely important to have a mileage log or all deductions could be disallowed.
 

15) Overlooked Deductions

The following items are often overlooked by taxpayers who itemize their deductions:

• Depreciation on a self-owned computer or cell phone required to do your job

• Education that is employment related

• Home office or part of your home used regularly and exclusively in your work

• Job search expenses in your present occupation

• Business, medical and charitable mileage

• Legal fees related to doing or keeping your job and protecting or collecting taxable income

• Subscriptions to professional journals and trade magazines related to your work

• Tools, supplies and safety equipment used in your work

• Travel, transportation, entertainment and gift expenses related to your work

Consult with your tax professional at Fiscal Tax to assure that you take advantage of all deductions you deserve.