Take advantage of tax credits, deductions
Now that the holiday decorations have been taken down, many are preparing for another season--tax season.
Eileen St. Pierre, Oklahoma State University Cooperative Extension personal finance specialist, said it is important to be aware of all the tax credits and deductions available for the 2011 tax year.
"For those taxpayers who do not itemize, the standard deduction amounts for 2011 are $5,800 for singles, $11,600 for married couples filing jointly and $8,500 for heads of household," St. Pierre said. "Because of tax legislation passed at the end of 2010, married filers will not face a marriage penalty for 2011. The standard deduction for married filers remains twice that of a single filer."
The personal exemption will increase by $50 to $3,700 and remain at that level through 2012. Tax payers who earn more than a certain amount will see this exemption phase out and the amount of itemized deductions reduced.
In addition, homeowners will continue to be able to deduct mortgage insurance premiums on Schedule A. However, this was a temporary tax break. It became effective for mortgage insurance policies issued on or after Jan. 1, 2007, and expired on Dec. 31, 2011.
"Many taxpayers saw generous energy tax credits in 2010. Unfortunately, these credits are not as generous for 2011. The home improvement tax credit is significantly reduced to a lifetime maximum of $500 and only applies to 10 percent of the cost of the home improvement, not including installation," she said. "If you've received more than $500 between 2006 and 2010 for home improvement tax credits, you're not eligible for anything more."
The credit for Energy Star windows and skylights is capped at $200 and eligible doors are capped at $500. Furnaces and boilers are capped at $150 and must meet 95 AFUE. The credit for air conditioners, heat pumps and water heaters is capped at $300.
Tax legislation passed at the end of 2010 extended the Bush tax cuts of 2001 and 2003 until the end of 2012. The child tax credit will stay at $1,000 per child, instead of dropping back to $500 per child.
This legislation applies to other tax credits. The dependent care credit allows a taxpayer a credit for a percentage of child care expenses for children under the age of 13, as well as for disable dependents. The amount of eligible expenses is $3,000 for one child and $6,000 for two or more children. The adoption tax credit will remain at $10,000.
"Families with three or more children will continue to receive the increased Earned Income Tax Credit of 45 percent of the family's first $12,750 of earned income," St. Pierre said. "The income phase-out range for married joint filers, regardless of the number of children, will continue at the higher level set by the Bush administration."
Some educational incentives, such as the American Opportunity Tax Credit, deductions for student loan interest or qualified education expenses, have also been extended for an additional two years.
St. Pierre stressed that taxpayers should not overlook the Retirement Savings Contribution Credit, also known as the Saver's Credit. This credit is designed to help workers with low-to-moderate income save for retirement. Workers who have an income below a certain amount and contribute to an IRA or a workplace plan such as a 401(k) may qualify for a credit up to $1,000 ($2,000 if filing jointly).
"As you begin gathering receipts and other tax-related paperwork, make note of all of the credits and deductions for which you're eligible," St. Pierre said. "This will help you keep more of your own money. You can use your income tax refund to either start or boost your emergency savings fund, or help achieve other financial goals."