The tax-filing deadline is looming, and many people are rushing to finish their
returns. If you’re one of them, are you certain that you’ve taken all the deductions
and used all the credits to which you’re entitled? The Pennsylvania Institute of
Certified Public Accountants (PICPA) discusses a few of the money-saving steps that many taxpayers miss.
Choose the Correct Standard Deduction
The standard deduction you take is based on your filing status. But did you know that your age and other factors also make a difference? You can take a higher deduction if you are age 65 or older, if you are blind, or both. You can find out more about higher deductions on the IRS website.
Consider State Income Tax vs. State Sales Tax Deduction
Many people forget that taxpayers who itemize deductions are allowed to deduct the state and local sales taxes they paid during the year. Be aware that you can choose either a deduction for state and local sales taxes or one for state and local income taxes. If your state has no income taxes, then you’ll clearly want to look into deducting your state and local sales taxes. Even though Pennsylvania has an income tax, your personal situation may be such that it may be worth your while to add up all your 2011 receipts to see if the sales taxes you paid are higher than your state and local income taxes for the year. (If you don’t have receipts, you can use the IRS’s state tax deduction calculator.) Know that you may have run up high state or local sales taxes in 2011 if you made a significant purchase, such as a car, boat, airplane, or other big-ticket items. Also, if you owed state or local income taxes when you filed your return last year, don’t forget to include those taxes in any amount you deduct this year.
Don’t Miss Out on Student Loan Interest Deductions
The deduction of student loan interest can be tricky. Many college students or young workers may not deduct the interest paid on their student loans if their parents paid that interest and claimed an exemption for them on their tax return. However, taxpayers who are not claimed as dependents on their parents’ returns can claim up to $2,500 in deductions for student loan interest, even if someone else is paying off the loan or interest, as long as the loan is in their name. Remember to check the limitations on eligibility for the student interest deduction based on your modified adjusted gross income.
Take Tax Credits into Account
Deductions lower your taxable income, but tax credits are more valuable because they directly reduce the amount of tax you pay. That’s why you must not overlook any of the credits for which you are eligible. The Earned Income Tax Credit lowers the tax bite for low- and moderate-income working families. The child tax credit applies for most families with children under 17, and the child and dependent care credit should come in handy for families who pay for child care. The American Opportunity and Lifetime Learning credits help families cover education costs, while the saver’s credit makes it easier for lower-income families to put away money for retirement. There are also credits for homeowners who have made energy-saving improvements during the past year.
Your Local CPA Can Help
Each taxpayer’s situation is unique, so there are many possible deductions, credits, and other tax-saving opportunities. Your local CPA can help you make sense of your taxes and ensure that you’re paying the right amount. Turn to him or her with questions on all of your family’s financial concerns. To find a CPA in Pennsylvania by location or area of expertise, visit www.IneedaCPA.org.
IRS Calculator: http://www.irs.gov/individuals/article/0,,id=152421,00.html
This column on Money Management is a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession’s nationwide 360 Degrees of Financial Literacy program.
The Pennsylvania Institute of Certified Public Accountants is a professional association of more than 20,000 CPAs who work in public accounting, industry, government, and education. Founded in 1897, PICPA is the second-oldest state CPA organization in the United States. To find a member CPA in your area, visit our website at www.picpa.org and click on Find a CPA.