Everyday tax savings for all year long
(ARA) — Your daily expenses and activities may be earning you valuable tax breaks. From child care and retirement savings to medical expenses and hobbies, you have many opportunities to save thousands on your federal taxes.
Even if you don't qualify for a tax credit or deduction at this time, you may by the end of 2011. "The most important thing to do now is save receipts and documents," says Jessi Dolmage, spokesperson for TaxACT. "Keep the information organized and in one place to make tax time easier and faster."
Here are nine everyday ways to save on your 2011 federal tax return due April 17, 2012:
Child care expenses. Parents who work, attend school or are disabled may be able to write off child care expenses for children younger than 13. The Child and Dependent Care Credit includes before- and after-school care and day camp (overnight camp does not qualify). The credit amount depends on income, but is generally 20 to 35 percent of up to $3,000 in qualifying expenses per dependent, or $6,000 for 2 or more dependents.
Standard mileage. Instead of calculating costs of using a vehicle for business, charitable, medical or moving purposes, you can use the Internal Revenue Service's 2011 standard mileage rates. For the first half of the year, business miles are 51 cents per mile, and medical and moving miles are 19 cents. For business, medical and moving miles driven July 1, 2011 through the end of the year, you can claim 55.5 and 23.5 cents per mile. Mileage driven for charitable organizations is 14 cents per mile for all of 2011.
Home office deduction. Whether you're self-employed or an employee, direct and indirect expenses for use of your home for business purposes may be deductible. The space must be regularly used as the principal place of business or for business meetings. The deductible amount is determined by the percentage of your home used and whether your gross business income is less than your total business expenses.
IRA contributions. Depending on your adjusted gross income and whether you're covered by an employer-sponsored plan, you may deduct up to $5,000 of contributions to a traditional IRA. If you're 50 or older, you can deduct as much as $6,000. Contributions to both traditional and Roth IRAs for 2011 must be made by April 17, 2012.
Health Savings Account (HSA) contributions. Participants can take an above-the-line deduction for up to $3,050 (or $6,150 for families) in HSA contributions on 2011 federal returns.
Medical expenses. If medical and dental expenses for you, your spouse and dependents exceed 7.5 percent of your AGI, costs paid in 2011 may qualify as an itemized deduction. Expenses meeting IRS criteria may include insurance premiums, fees paid to medical professionals, prescription drugs, transportation costs and hospital services.
Charitable gifts. If you itemize deductions, you can deduct the cash amount or fair market value of the household goods donated to qualified organizations. Keep a copy of the bank record or official notification from the organization for monetary gifts. If you receive benefits in return for the contribution, you cannot deduct the value of the benefit. If your non-cash donations total $500 or more, you must file Form 8283 with your tax return.
Profitable hobbies. Are you generating income from a hobby? You may be able to deduct hobby expenses up to the amount of income generated as an itemized deduction. The IRS considers a hobby an activity you'd do even if it didn't generate income. In other words, you don't pursue the hobby in order to make money. If your hobby generates regular income, you may get bigger tax benefits from making it a business.
Mortgage interest. If you itemize, you can generally deduct the interest paid on your home mortgage(s). The deductible amount depends on the mortgage date, amount and how you use the mortgage proceeds.
More information about the above tax breaks can be found at www.irs.gov.
Tax preparation solutions provide easy and understandable means to navigate these credits and deductions. They'll even complete the forms for you. TaxACT solutions for 2011 tax returns will be available in early October, allowing you to estimate your federal and state taxes, and get year-end tax tips. Learn more at www.taxact.com.