Posted by : Daniel Stoica in (Articles, Federal Tax Return, Federal Taxes, State Income Tax, State Tax, Tax Return, Tax Tips) On: August 16th, 2011
Tagged Under : 1099, accounting professional, American Opportunity Credit, AMT, Daniel Stoica, deductions, home credit, insurance, interest, IRS, mortgage, tax credit, tax professional, Tax Tips, taxpayers
Commonly Missed Deductions:
-State-tax refunds for AMT taxpayers
If your refund is less than your disallowed Alternative Minimum Tax (AMT), your state refund won’t be taxed.
-Environment Friendly Home Credit
Did you install energy efficient windows, a solar powered water heater, geothermal heat pumps, or low-energy roofing? If so, you might qualify for a 30% credit on your 2011 taxes, or a maximum of $500. Being environmentally conscious will help you save money.
Did you know you can deduct your car insurance on your federal taxes? You can deduct the cost of oil, tires, your license, and your insurance premiums if you use your vehicle for business. If you decide to only deduct your mileage, you cannot deduct the other expenses. You may choose one or the other, but not both.
You can also deduct your health insurance premiums on your federal taxes. You can even deduct 100% of your premiums if you’re self-employed, which includes premiums for your spouse and dependents. Your health insurance itself, however, is not deductible.
-The American Opportunity Credit
If you pay college tuition, you can take the American Opportunity Credit. You can take a credit of up to $2500. This credit has been extended through 2012 and is there for taxpayers whose adjusted gross income is less than $80,000.
Common Audit Triggers:
-Large Mortgage Interest Deductions
If your deductions are over $50,000, it generally sends a red flag to the IRS. You are allowed to deduct interest on you mortgage for a loan less than $1 million, which makes the interest around $50,000 or 5% of your mortgage. But by doing so, you may send a red flag for an audit.
-Rental Real Estate Losses
Taxpayers who claim to be real estate professionals due to rental income losses and attempt to deduct the losses on their income will trigger an IRS audit. You can only claim yourself as a real estate professional if you have at least 750 work hours, so if you are claiming this profession, the IRS will turn their heads to look. With the housing market in the situation it’s in, most taxpayers are losing a lot of money on their rental properties, however, they can’t qualify as real estate professionals, so they can’t take the tax deduction that comes with it.
-Home-buyer tax credit
Congress passed three stimulus bills in 2008. Initially, the stimulus bill caused some fraudulent activity. Today, Congress requires more intensive documents in order to qualify for the tax credit.
Common Human Errors:
-Overstating Charitable Work
If you went to a charity dinner where the cost was $500 per plate, you can’t deduct the entire $500. This is also true of charitable activity. The charity must tell you about this rule, so it’s a good idea to read through the correspondence you receive from them.
-Omitting Payments On Interest
Most taxpayers forget about the interest they pay during the year. Banks and other financial institutions aren’t required to give you a 1099 for for anything under $10. Even small amounts of interest are considered taxable income and you must report them on your taxes. If you don’t, the IRS will notice.
Many taxpayers calculate their mortgage “points” incorrectly for their deductions. On first mortgages, the fees are deductible. Refinance points have to be amortized, and can then be deducted throughout the loan.
It’s recommended that you hire a tax professional when you are filing your taxes, especially if you have many deductions and credits. Be organized and keep all of your receipts and other financial documents safe and close.