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Tax Tips for your 2011 Return
Amending Past Returns
Generally, you can amend your tax return if you've filed, and later realize that you've omitted income, overlooked deductions, or for any other reason need to change that return. You can amend your return by filing Form 1040X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. You cannot change your filing status from married filing jointly to married filing separately after the due date of the original return.(back to top)
Alternative Minimum Tax Gets "Another Patch"
For tax year 2011, the AMT exemption amounts will increase to $48,450 for single and head of household filers, $74,450 for married filing jointly or qualifying widower, and $37,225 for married filing separately. Taxpayers can also deduct nonrefundable personal credits in 2011 such as the child tax credit to reduce their AMT liability. (back to top)
Net Capital Gains And Losses
The maximum tax rates for net capital gains are 0% and 15%. Short term capital gains are capital assets such as stocks or bonds held for one year or less and are taxed at ordinary income rates. Long-term capital gains are capital assets held for longer than one year before they are sold. The holding period begins the day after acquiring these assets and ends on the day of sale. Capital gains and losses are declared on Schedule D, Capital Gains and Losses. (back to top)
Casualty And Theft Losses For Personal Property
eSmart Tax reminds you that casualty and theft losses on personal-use property can be claimed on your tax return if you have damage from unexpected events such as wildfires, hurricanes, tornadoes, or from a burglary or theft. You need to calculate the loss to see if it is deductible. Figure the decrease in value by taking the lower of fair market value before the casualty or the adjusted basis and comparing it to the fair market value after the casualty. This loss, minus any insurance reimbursements, is your actual loss. Subtract $100 for each separate casualty or theft that occurred during the year. The total of all casualty and theft losses must be further reduced by 10% of the taxpayer’s adjusted gross income to arrive at the deduction which will be reported on Schedule A, Itemized Deductions.
Disaster Area
Declaring casualty and theft losses can be a confusing process. Taxpayers must declare casualty losses in the year they suffered them unless they are in a federally declared disaster area. Those suffering property losses in these areas may amend their previous year's tax return to take the loss. This action will enable them to get a possible return refund sooner from property losses instead of waiting until they file their current year's tax return. Casualty and theft losses for personal property can be claimed as the result of destruction from unanticipated weather events such as wildfires, hurricanes, tornadoes, or from burglaries and break-ins, by filing Form 4684, Casualties and Thefts, Section A Determine the loss by figuring the decrease in fair market value minus any insurance reimbursements. Then subtract another $100 for each casualty or theft that occurred during the year. A total of all casualty and theft losses must be further reduced by 10% of the taxpayer's adjusted gross income. These limits do not apply to business and income producing property, such as rental property, which is claimed on Form 4684, Section B. Taxpayers who have incurred property losses should file insurance claims promptly. Only losses not covered by insurance should be claimed on Form 4684. (back to top)
eSmart Tax reminds you that the IRS has imposed stricter standards for the condition of some items donated to charities. No deduction is allowed for clothing and household items unless the donated property is in "good used condition or better." The rule does not apply to any contribution of a single item for which a deduction of more than $500 is claimed if the taxpayer includes a qualified appraisal with the return. Monetary charitable contribution deductions will be disallowed unless the donor maintains a record of the contribution with cancelled checks, receipts, and written documentation.(back to top)
Vehicle Donation As A Charitable Contribution
Do you plan to donate your used car to a nonprofit organization? eSmart Tax reminds you that you may not be able to claim the “blue book value” of the car. The IRS has placed limitations on the amount that may be deducted for a vehicle donation. The amount that can be claimed will be based on how the charity or nonprofit organization actually uses the vehicle. If the organization sells the donated vehicle without using it in any significant way, the charitable deduction cannot exceed the gross proceeds of the sale. If the organization uses the vehicle, but does not sell it, the taxpayer must have documentation of the vehicle’s value, or fair market value. The receiving organization should issue Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes exceeding $500.00. One copy of this form should be kept with the taxpayer’s records and the other should be attached to the tax return.
Charitable Donations - Tax-Free Distributions From IRAs For Charitable Purposes
Taxpayers can exclude from income distributions from IRAs made directly to a charity through December 31, 2011. The maximum contribution limit for 2011 is $100,000.. (back to top)
Child Tax Credit
eSmart Tax reminds you that the child tax credit remains $1,000 for a qualifying child under age 17. A qualifying child is a son, daughter, stepchild, eligible foster child who is a dependent, brother, sister, stepbrother, stepsister, or descendent of one of them (including grandchild, niece and nephew). This credit is nonrefundable, and can only reduce the taxpayer's income tax. If you do not receive all of the child tax credit, you may be eligible for the additional child tax credit which is refundable.
Child Tax Credit Change
For 2011, the child tax credit is refundable to the extent of 15 percent of the taxpayer's earned income in excess of $3,000.
Additional Child Tax Credit
eSmart Tax reminds you that a refundable additional child tax credit may be available to those who qualify and have not used up the available child tax credit. A military taxpayer's nontaxable combat pay is added to the earned income which may give a larger credit. The percentage used to determine the credit is 15% of the earned income over $3,000.
Child And Dependent Care Credit
eSmart Tax reminds you that a credit for up to 35% of qualified child and dependent care expenses paid is available for taxpayers who pay childcare in order to go to work. Qualified expenses may be allowed for up to $3,000 for one eligible individual ($6,000 for two or more). Persons employed or looking for work that must pay someone to care for dependents under age 13 or for a qualified disabled person may also be able to take this credit.
Adoption Credit
eSmart Tax reminds you that the maximum adoption credit and exclusion amount is $13,360. This is also the maximum exclusion from income under an employer's adoption assistance program. The full credit will be allowed for adopting a special needs child, regardless of whether the taxpayer has qualifying expenses. This is subject to phase-out modified adjusted gross income limits of between $185,210 and $225,210. The adoption credit becomes a refundable credit in 2011.
Tax on Investment Income of Certain Children
A child under age 19 and whose income is not more than half of their support, and/or a child who is a college student under age 24 and whose earned income is not more than half of the child's support, will have their investment income taxed at their parents' rate. Children in these categories can earn no more than $1,900 in investment income before they are taxed. (back to top)
Bonus Depreciation
eSmart Tax reminds you that you may be able to claim additional first year depreciation of 100% of the property's depreciable basis. Eligible property must have a recovery period of 20 years or less. The 100% bonus depreciation is for qualified property placed in service after September 8, 2010 and before January 1, 2012. If you do not want to claim the 100% bonus depreciation, you must elect out for all property in that class. (back to top)
DIRECT DEPOSIT AND PAYMENT OPTIONS
Split Direct Deposit Option
eSmart Tax reminds you that that you can have your refund direct deposited in up to three different banks or financial institutions. Refunds may also be used to purchase U.S. Series I Saving Bonds. Taxpayers can use the direct deposit line on the Form 1040 to specify a deposit to one institution. For more than one financial institution, taxpayers should use Form 8888, Direct Deposit of Refund to More Than One Account.
Installment Payment Plan
eSmart Tax reminds you that you may pay the taxes you owe in installments if you can't pay the total to the IRS by the tax deadline. If you are not currently paying by an installment plan, complete Form 9465, Installment Agreement Request, and attach it to the front of the return. You should send as much of the payment as possible with the return in order to limit penalty and interest charges which will continue accumulating until the total amount due is paid off. Taxpayers who have already mailed or electronically filed their returns can mail Form 9465 to their appropriate IRS Service Center. An IRS representative will contact you to discuss the situation and arrange the payments.(back to top)
Earned Income Credit(EIC)
eSmart Tax reminds you that the EIC income level limits for 2011 are:
- Three or more qualifying children: less than $43,998 for single taxpayers, and $49,078 if married filing jointly.
- Two qualifying children – less than $40,964 for single taxpayers, and $46,044 if married filing jointly.
- One qualifying child: less than $36,052 for single taxpayers, and $41,132 if married filing jointly.
- No children: less than $13,660 for single taxpayers, and $18,740 if married filing jointly.
- The maximum investment income for 2011 is $3,150.
Earned Income Credit (EIC) And Military Combat Pay
eSmart Tax reminds you that if you serve in a combat zone, you may elect to include combat pay in the earned income amount used to figure your earned income credit. For 2011, the maximum credit amount for three or more qualifying children is $5,751, for two qualifying children it is $5,112, and for one qualifying child, it is $3,094. For a taxpayer who does not have a qualifying child, the maximum earned income credit is $464.
Tuition And Fees Deduction For Higher Education Costs Continues through December 31st, 2011
eSmart Tax reminds you that qualifying higher education expenses such as tuition and fees you paid for yourself, a spouse, or a dependent may be deductible. Up to $4,000 of these expenses can be deductible as an adjustment to income if your adjusted gross income is below $65,000 ($130,000 if married filing jointly). The deduction is limited to $2,000 if your AGI exceeds that limit but is under $80,000 ($160,000 if MFJ). The taxpayer cannot claim this deduction and the American Opportunity Credit, Hope Credit or lifetime learning credit for the same student in the same year.
Student Loan Interest
eSmart Tax reminds you that taxpayers repaying a student loan (or education loan) may qualify to deduct up to $2,500 of their student loan interest as an adjustment to income. There are AGI limitations which determine deductibility. The credit may be phased out if your modified adjust gross income exceeds certain limits. For 2010, the phase-out levels are between $60,000 and $75,000 for single, head of household, and qualifying widow taxpayers, and between $120,000 and $150,000 for married filing jointly.
Education Credits
The American Opportunity Credit modifies the Hope credit by making it available to more taxpayers. The credit now covers the cost of required course materials, and extends the time a student can claim it from two years to four years. The credit will allow up to $2,500 of the cost of college tuition and related expenses. Forty percent of that credit will be refundable. The lifetime learning credit gives a credit of 20% of qualified educational expenses not exceeding $10,000, for a maximum credit of $2,000. There are phase-out modified adjusted gross income levels for both credits.
Qualifying Expenses For Education Credits
Which educational expenses qualify for the education credits? eSmart Tax reminds you that tuition you paid for yourself, your spouse or a dependent to attend an eligible educational institution in 2010 should qualify. The costs of books, supplies and equipment do not usually qualify but may qualify if these purchases are required by and paid to the school in order to attend. The amount of credit for the Hope and/or Lifetime learning credits will be reduced for single taxpayers whose modified adjusted gross income is between $50,000 to $60,000 (between $100,000 and $120,000 for married filing jointly).(back to top)
New Exclusion Of Income For volunteer Firefighters And Emergency Medical Responders
Firefighters and emergency medical personnel may exclude from their gross income rebates or reductions of property or income taxes provided by a state or local government for providing services. Payments received for services performed as a volunteer firefighter or emergency medical responder up to $30 per each month services were performed may be excluded. (back to top)
Exemptions For 2011
eSmart Tax reminds you that you can deduct $3,700 for each exemption for 2011 filing. There are phase-out levels depending on the taxpayer's Adjusted Gross Income. The AGI phase-out begins at:
- $125,100 for married persons filing separately,
- $166,800 for single individuals,
- $208,500 for heads of household, and
- $250,200 for married persons filing jointly or qualifying widow(er) s.
You must reduce the dollar amount of your exemptions by 2% for each $2,500, or part of $2,500 ($1,250 if you are married filing separately), that your AGI exceeds the amount for your filing status. However, you can lose no more than 1/3 of the dollar amount of your exemptions. In other words, each exemption cannot be reduced to less than $2,433. (back to top)
RESIDENTIAL ENERGY EFFICIENT PROPERTY CREDIT
Residential Energy Efficient Property Credit Available In 2009 And 2010
Certain energy efficient home improvements such as windows, insulation materials and other property placed in service during 2011 can yield a credit of 10% up to $500. The residential energy credit may offer a tax break on a 2011 return if all installation is done and/or work was completed in 2011. Residential energy credits apply to homes, houseboats, mobile homes, condominiums, and qualifying manufactured homes. The $500 credit is reduced by any residential energy credit taken after 2006. (back to top)
HOMEOWNERSHIP- BUYING AND SELLING A HOME
Mortgage Insurance Premium Deduction
You can treat amounts you paid during 2011 for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt and the insurance contract must have been issued after 2006.
Selling A Home
A home seller who is a single taxpayer has the opportunity to owe no tax on the first $250,000 of profit for the sale of a home owned and lived in for two of the last five years. A married couple owes no taxes on the first $500,000 of profit for the same time period.
A surviving spouse who sells a principal residence within two years of the date of death of the spouse may exclude up to $500,000 of the gain if the ownership and use tests were met immediately before the date of death.First-Time Home Buyer Credit Is Extended Into 2010
Here's a tax tip from eSmart Tax. The first-time home buyer's credit was extended into 2011 for members of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31 and ending before May 1, 2010. In order to claim the credit, the taxpayer must have a signed purchase contract for a principal residence in force before May 1, 2011 and must close on their home purchase by Jun 30, 2011. First-time home buyers who have not owned a principle residence for 3 years prior to the purchase of a new home will continue to be eligible for a credit of up to $8,000. For homes purchased after December 31, 2008, the credit will not have to be repaid if the home buyer uses the home as their principal residence for 3 or more years. Those serving in the military will not be penalized if they claimed the credit and then have to deploy and sell their home within three years. If the first time home buyers credit was claimed in 2008, repayment of the credit will start when filing a 2010 return. (back to top)
EXPANSION OF FIRST –TIME HOME BUYER CREDIT
eSmart Tax reminds you that the first-time home buyer's credit has been expanded so that more homeowners now qualify for a tax break. People who have owned a home and used it as a principal residence for a 5-consecutive-year period during the 8-year period ending on the date of purchase of a new personal residence may qualify as first-time homebuyers and receive a credit of up to $6,500. To claim this credit, the taxpayer must have a signed purchase contract for a principal residence in force before May 1, 2010 and must close on their home purchase by June 30, 2010 (this also applies to the up to $8,000 credit). This credit is available for purchases of principal residents after November 6, 2009. Taxpayers who make qualified purchases after December 31, 2008 do not have to repay the amount of the credit if they reside in the home as their principal residence for 36 months after the purchase.
Long-Time Home Buyer Credit
eSmart Tax reminds you that the first-time home buyer's credit has been expanded so that more homeowners now qualify for a tax break. People who have owned a home and used it as a main residence for a 5-consecutive-year period during the 8-year period ending on the date of purchase of a new main residence may qualify as first-time homebuyers and receive a credit of up to $6,500. To claim this credit, the taxpayer must have a signed purchase contract for a principal residence in force before May 1, 2010 and must close on their home purchase by September 30, 2010. This credit is available for purchases of principal residents after November 6, 2009. Taxpayers who make qualified purchases after December 31, 2008 do not have to repay the amount of the credit if they reside in the home as their principal residence for 36 months after the purchase.
Tax Relief For Some Financially Distressed Homeowners
Liberty Tax reminds you that homeowners experiencing “short sales” and foreclosures will get an extended break for “debt-forgiveness” tax consequences. Instead of treating cancellation of debt as taxable income on the foreclosure of a principle home, no taxes will be levied on discharges of qualified acquisition indebtedness of up to $2 million dollars for married taxpayers filing jointly and of up to $1 million dollars for a married taxpayer filing a separate return through tax year 2012.
HYBRID CARS/ALTERNATIVE FUEL CREDIT
Hybrid Car Purchases May Still Yield Tax Benefits
In the market for a new vehicle with great gas mileage that can even yield a tax break? The IRS still allows timely tax breaks for purchasing certain hybrid cars, but a tax credit has replaced the clean-fuel burning deduction. The allowable credit amount is subtracted from the amount of federal taxes owed. A full or partial credit amount may be available, depending on the number of that hybrid vehicle model sold by the manufacturer.
A hybrid vehicle is one that combines an electric motor with a gasoline-powered engine. The vehicle must be purchased for your use, and you must be the original owner. This deduction can be claimed whether or not the taxpayer itemizes. Full credit is allowed for hybrid car purchases for a limited time that depends on when the manufacturer sells 60,000 models. Some hybrid models like the Toyota Prius no longer qualify for the credit. For the latest chart of eligible hybrid models and credit amounts, visit http://www.irs.gov/businesses/corporations/article/0,,id=203122,00.html (back to top)
Itemized Deductions
To itemize or to take the standard deduction? Liberty Tax reminds taxpayers that they can choose to claim the standard deduction, which means deducting a flat amount. Or they can itemize their deductions and subtract certain items and expenses on Schedule A. Itemized deductions include home mortgage interest and points paid in the year of a home purchase, medical and dental expenses, deductible taxes, interest expense, charitable contributions, employee business expenses, and other miscellaneous expenses.(back to top)
IRAs AND 401(k)'s/RETIREMENT PLANNING
eSmart Tax reminds you that for taxpayers covered by a pension plan at work, the modified adjusted gross income limit for deducting traditional IRA contributions has increased. A couple filing married filing jointly whose income is between $89,000 and $109,000 can take a partial deduction this year. Single taxpayers (including head of household filers) making between $56,000 and $66,000 can take a partial deduction. If MFS and the taxpayer lived with their spouse, the phase out is between 0 and $10,000. The contribution limit for 2010 is $5,000 ($6,000 if age 50 or older).
For 2010, if you are at least 70 1/2 and have a distribution made by the trustee of an IRA account directly to a charitable organization, the distribution will be nontaxable. The total charitable distribution cannot be more than $100,000 ($200,000 if married filing jointly).
Retirement Savings Contributions Credit
eSmart Tax reminds you that if you contributed to an IRA or an employer-sponsored retirement plan in 2011, you may be eligible for a credit. This nonrefundable credit is based on the adjusted gross income and can be up to $1,000 per taxpayer. It can be taken in addition to the deduction of the traditional IRA contribution.
Individual Retirement Arrangements(IRAs):
eSmart Tax reminds you that for taxpayers covered by a pension plan at work, the modified adjusted gross income limit for deducting traditional IRA contributions has increased. A couple filing married filing jointly whose income is between $90,000 and $110,000 can take a partial deduction this year. Single taxpayers (including head of household filers) making between $56,000 and $66,000 can take a partial deduction. If MFS and the taxpayer lived with their spouse, the phase out is between 0 and $10,000. The contribution limit for 2011 is $5,000 ($6,000 if age 50 or older).
IRA Additional Tax On Early Withdrawals
eSmart Tax reminds you that now there is no additional 10% tax on early withdrawals from an IRA in the following two circumstances: one of these is buying a first home for yourself, your children or grandchildren. A maximum of $10,000 can be withdrawn for this home purchase. No additional tax is due if the withdrawal is used to pay higher education expenses for the IRA owner, spouse, child, or grandchild. The withdrawal is still subject to income tax.
401(k) Retirement Plans
eSmart Tax reminds you that employees often have the option of contributing to a 401(k) retirement plan at their place of employment. It’s a method that employees can choose that allows wages to go into the plan on a pre-tax basis, thereby lowering their taxable income for each year they contribute. Although the amounts are included in wages subject to social security, Medicare and federal unemployment, these amounts are not reflected on your Form W-2. There are limits to the amounts that can be contributed annually. For 2011, the maximum annual contribution is the smaller of $16,500 ($22,000 if age 50 and over) or 100% of the actual compensation paid to the participant.
Roth IRA Conversion
Starting in 2010, taxpayers converting traditional IRAs, 401(k), 403(b) and 457government plans to Roth IRAs are not subject to modified AGI and filing status requirements. Taxpayers who made a conversion to a Roth IRA in 2010 could pay the tax in equal increments on their 2011 and 2012 tax returns. For 2011 they need to claim half of the total amount converted as taxable income. For conversions made in 2011, all tax due will need to be paid with the 2011 tax return (back to top)
Job Expenses
eSmart Tax reminds you that generally, you can depreciate the amount you spend for tools used in your work. Some of the other expenses you may deduct include union dues, job-related magazines and books, and other related business expenses. If your employer requires you to wear work clothes or uniforms that are not suitable for everyday wear, you may deduct the cost and upkeep. These expenses are deducted on Schedule A subject to 2% of your adjusted gross income.
MOVING EXPENSES
eSmart Tax reminds you that if you've moved at least 50 miles during 2011 in order to work at a new work location, you may be able to deduct some moving expenses. For 2011, the standard mileage rate for the cost of operating your car for determining moving expenses is 19 cents per mile driven January 1 through June 30 and 23.5 cents per mile drive July 1 through December 31. Deductible moving expenses include the cost of moving furniture and household items as well as your lodging en route. Always be sure to notify the IRS of your relocation, by sending a Form 8822, Change of Address, to the IRS Service Center where you filed your last return.(back to top)
Medical Expenses
eSmart Tax reminds you not to overlook medical deductions for which you qualify. Hearing aids, eyeglasses, contact lenses, hospital fees for nursing, physical therapy, lab tests and x-rays are all deductible. You may also deduct mileage driven to fill prescriptions at 19 cents per mile driven January 1 through June 30 and 23.5 cents per mile drive July 1 through December 31 for 2010. Taxpayers who itemize can deduct unreimbursed medical expenses that they paid during the year if these exceed 7.5% of their adjusted gross income. (back to top)
Deductible Mileage Rates
eSmart Tax reminds you that the standard business mileage rate for 2011 is 51 cents per business mile driven January 1 through June 30 and 55.5 cents per business mile drive July 1 through December 31. The deductible amount for mileage driven during a move and/or for medical purposes is 19 cents per mile driven January 1 through June 30 and 23.5 cents per mile drive July 1 through December 31. Charitable mileage is deductible at 14 cents per mile in 2011. Be sure that you document this mileage by keeping a log or other written record. (back to top)
Sales Tax Deduction Continues Through December 31st, 2011
Taxpayers can take advantage of state sales tax deductions if they itemize deductions. Those who live in one of seven states without a state income tax may deduct their state sales tax when they itemize. Taxpayers in states with state income taxes can choose to deduct their state income taxes or state sales taxes, whichever is more advantageous. (back to top)The standard deduction amounts for 2011 are:
- Married filing jointly $11,600
- Single $5,800
- Head of household $8,500
- Married filing separately $5,800
SMALL BUSINESS OWNERS/ SOLE PROPRIETORS
Section 179 Deduction
eSmart Tax informs you that the limit for the section 179 deduction is $500,000 for qualified business property placed in service in 2011. The section 179 deduction is for tangible personal property such as machinery and equipment instead of depreciating them over the useful life of the items. Section 179 can only be deducted in the year of purchase. (back to top)
eSmart Tax reminds you that a home office will qualify as the principal place of business if it is used exclusively and regularly to conduct administrative or management activities of a trade or business and/or store inventory. There must be no other fixed location of the business where the taxpayer can conduct these activities. The area claimed can only be used for your business, and not at all for personal use. You may or may not be able to claim the entire amount. You can if your gross income from the business is equal or greater than your total business expenses. (back to top)
TEACHERS AND EDUCATORS DEDUCTION
Teachers And Eligible Educators Deduction Continues Through December 31st, 2011
Eligible educators who spend their own money on classroom supplies may qualify for a tax break again when filing a 2011 return. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide who works at least 900 hours in either a public or private school. The adjustment for these expenses, of no more than $250, can be claimed whether or not the taxpayer can itemize.(back to top)
Adjusting Your Withholding Amount
eSmart Tax reminds you that you can adjust the withholding amount and the allowances you are claiming by completing a new Form W-4, Employee's Withholding Allowance Certificate, and giving it to your employer. Recent tax changes or personal changes such as marriage or divorce, birth of a child, and changes in employment or income may mean that too little or too much tax is being withheld. If you need to have more money taken out of your paycheck, reduce the number of withholding allowances, or figure the additional amount of money that you would like withheld each pay period.
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