By Mitch Marsden
Once again it is that time of the year when we sit down with our tax preparers or tax prep software and review just how much money we are handing over to Uncle Sam. Doesn’t it just make you cringe? On the bright side, having to pay taxes at least means there is income or gains in some form or another, a blessing some can’t lay claim to.
Here are three deductions and one credit you or your family members may be able to take advantage of to help reduce the cash shelled out to the taxman.
1. Medical Deductions. You may already be doing this to the max, but take a look at a few of the expenses listed below that the IRS allows you to include as medical expenses. Make sure not to miss them if you or your loved ones itemize deductions!
- Medical and Dental insurance premiums paid with your own after-tax money, including Medicare premiums for Part B, Part D or other Medicare supplement insurance
- Long-term care insurance premiums (subject to certain limitations)
- Transportation expenses that are necessary for medical care (not just for general health). This could include something as simple as trips to the hospital or doctor. The standard mileage rate for 2011 was 19 cents a mile from January 1 to June 30 and 23.5 cents a mile from July 1 to December 31
- Medical expenses paid on behalf of “qualifying relatives” even if you are not able to claim them as a dependent on your tax return
- Other overlooked expenses such as for eyeglasses needed for medical reasons, hearing aids, pregnancy test kit, birth control pills, wheelchair and a number of other tools, equipment, and services for medical purposes
These are just a few examples of what the IRS has listed in 2011 Publication 502 which can be accessed at http://www.irs.gov/pub/irs-pdf/p502.pdf. Be sure to work with your tax preparer to understand and follow the rules in order to take the appropriate deductions.
2. Investment Advisory Fees. If you paid fees to an investment advisor for managing or advising you on your investments, you may include these fees as a miscellaneous itemized deduction on your Schedule A. Note that this does not include commissions you may have paid to a broker or advisor on the purchase or sale of investments. Fees that are paid directly from a retirement account are also not includible.
3. Alabama State Tax Deduction for 2011 Contributions & Rollovers to AL State 529 Plan. For Alabamians, if you made a contribution or rollover to a CollegeCounts Alabama 529 plan in 2011, you may take a deduction for the same up to $5,000 ($10,000 for couples married filing jointly) on your Alabama state income tax return. This is also true for contributions even if you were not the owner of the 529 account. If you live outside of Alabama, check into your own state’s 529 tax rules as many offer a similar tax benefit to their residents.
4. Retirement Saver’s Credit. This little known tax credit rewards taxpayers for making contributions to an employer-sponsored retirement plan or to an IRA (Roth or Traditional). The credit ranges from 10% to 50% of the contribution, subject to limits, depending on the filing status and adjusted gross income level. The credit also only applies to single filers with income under $28,250 and to couples married filing jointly with income below $56,500 in 2011. This credit is an additional bonus to the other great tax advantages offered by retirement plans.
If you are not eligible for the credit, but you know adult children, other family members or friends that may be eligible, share the good news with them. They can even still make a 2011 IRA contribution until April 17th, 2012 to qualify for the 2011 credit. It is also an excellent way to encourage them to make long-term savings and investments today.
Good luck to you as you navigate this year’s tax season. Remember, tax planning is an all-year-round process, so begin thinking today about how to legally and rightfully minimize your 2012 tax burden.
Mitch Marsden is a part of the planning team at Longview Financial Advisors in Huntsville, Alabama. He is a graduate of the University of Utah with a degree in Financial Planning as well as a candidate for CFP Board certification. Mitch can be reached via e-mail at email@example.com.
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