February 16, 2012

Don't Forget...

Credit: renjith krishnan
In light of my most recent post, I heard from some people that prepare their own taxes that they wanted me to do a post on commonly forgotten tax deductions. Well I will be happy to, but before I start in on some frequently missed deductions and common tax misconceptions, let me quickly address preparing your own tax return.

Believe me, I am not getting a kick-back from any firm for saying this, but you really should let a CPA prepare your taxes. I know you can save a little money by doing your taxes yourself as opposed to paying a tax preparer, but do you know how much financial and emotional pain one mistake on your taxes could cause?  It’s easy to make a mistake on your taxes because the tax law is complicated and it's always changing. For example, according to the IRS’s own commissioner, there have been more than 3,500 tax law changes since 2000! If, in spite of my warnings, you still want to prepare your own taxes, please at least consider letting a CPA review your taxes every few years. This ensures that you aren’t missing out on any potential savings or inadvertently doing something wrong that will come back to you in a few years, with interest.

Well, I’m off my soap box. Here are some tax tips for you to consider as you get ready to file your 2011 federal taxes:

• If you paid any state income taxes during the year or paid any prior year’s state income taxes in 2011, they are potentially deductible for federal tax purposes. That being said, if you received a state income tax refund last year and itemized your deductions on your 2010 federal income tax return, all or part of the refund may need to be included on your 2011 federal income tax return.

• If you took out a first mortgage or refinanced after January 1, 2007, and are paying private mortgage insurance, you could be able to deduct that expense.

• If you got married at any point during 2011, you and your spouse are eligible to file together under the more tax advantageous Married Filing Jointly status for 2011.

• If you paid interest on a qualified student loan, you could be able to deduct up to $2,500 in interest.

• If you moved more than 50 miles away from your old home and your old job, there are many moving expenses such as transporting expenses, shipping expenses, and travel costs that you could potentially deduct.

• If you were out of work or looking for a new job in 2011, you could be able to deduct some of your expenses for resume critiques or paying a recruiter as long as the job-search was within your particular field.

• If your medical and dental expenses for you and your family exceeded 7.5% of your adjusted gross income, you could be able to deduct those expenses. After December 31, 2012, that threshold becomes 10%!

• If you made charitable contributions of $250 or more of cash, goods, or services, you must receive a substantiated acknowledgment from the qualified organization in order to potentially claim the deduction. If you made total non-cash contributions of more than $500, you have to fill out an additional form, Form 8283 to go with your tax return.

• If you rented a safety deposit box, you could be able to deduct the expense if you used the box to store taxable, income-producing documents such as stock certificates or savings bonds.

• If you had investment expenses, such as financial advisor or investment fees, you could be able to deduct those costs.

• Finally, remember you can still make your 2011 contribution to your traditional IRA or Roth IRA as long as you do so by April 17, 2012. Making your 2011 contribution to a traditional IRA before April 17 is one of the few ways you can potentially generate a deduction in 2012 that counts for 2011.

Please note that many of the potential deductions I have listed come with caveats and additional requirements, and some of them face adjusted gross income thresholds of 2% or more. In fact, I could write individual blog posts on many of the items listed above by themselves! That’s why I have included so many links that take you to additional details you should consider before you claim an item as a deduction. I hope this post helps you as you prepare your 2011 taxes, but if you are uncertain about something I have written or provided a link to, I would once again suggest you find a tax advisor.

By the way, tax preparation fees can also be deductible.


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