2011 US Federal Income Tax Deductions and Options

Ask your Uncle to "auntie" up, US Tax Style!
Ask your Uncle to "auntie" up, US Tax Style!

2011 Tax Time is Here

Time Extensions

If you still need more time, better to file a 3-month extension than do a poor job. It's worth your while to get the best return that you're entitled to, so take your time and do it right.

Whatever you do, don't panic. You are not alone. Let's take a look at the tax situation for 2011. Some things have gone by the wayside - but there are still some good options to consider for lowering your federal tax due for 2011.

Time Value of Money

The check is in the mail!  Best to be smart and not overpay your tax bill, because your refund check is worth less money tomorrow than it's worth, today.
The check is in the mail! Best to be smart and not overpay your tax bill, because your refund check is worth less money tomorrow than it's worth, today.

Tax and Taxable Income - Deductions and Options

How much money did you make in 2011?

By now, taxpayers should know how much money they made in 2011. (By the way, it is monies EARNED, not necessarily received - and expenses INCURRED, like a credit card bill for a computer - not necessarily paid for. For this reason, many businesspeople buy equipment at the end of December on their credit cards to help lower their business operational income, if the expense qualifies as a deduction!)

Be it income from a primary job source, a side or seasonal job, Schedule C income like a small home-owned business (carpentry work, breeding puppies, making cakes or doing tax returns for your friends), passive or interest income (like HubPages!), all incoming monies exceeding $10 "should" be accounted for.

The good news about Schedule C income is you can take deductions that will lower your AGI - and lower your tax bill. The deductions are never one for one - (spend a dollar save a dollar) but you will be able to lower the base upon which your total tax expense is based. So if you are lucky, you will find a ton of deductions related to your Schedule C income.

Possible write-offs options include -

Clothing, tools, membership fees, further education, and - if you are a homeowner, a portion of your home. If your office takes up 15% of your home, used entirely for your business (a tiny bedroom for example) 15% of your home's expenses are eligible as a write off.

It pays to get creative and really imagine all of the things that should or could be an allowable deduction - a portion of internet expenses, business phone, miles incurred, meals, and so on. Keep track of mileage in your day-book (Daytimers or whatnot) 10 miles to see George at the Club - so whenever you meet with George it will be 10 more miles. All these things are reasonable - no one ever keeps 100% perfect records - but do your best.

Tracking Expenses

Regarding expenses, the ideal situation is keeping a “pay as you go” Excel spreadsheet showing medical, professional and other qualified expenses incurred throughout the year. I have a friend who downloads photos right after recording her receipts on a daily basis. The categories I set up make sense for me - feel free to change the headings (listed at the bottom) if you like. There are 30 to 31 lines depending upon the number of days in the month.

Standard or Itemized? That is the Question

Standard Deductions

Standard deductions this year are $5,800 (Single) and $11,600 (Married Filing Joint). Unless you have a home, extreme medical bills and interest income/expenses, most people will choose to take the Standard Deduction. With your handy-dandy spreadsheet that you've been keeping throughout the year, it will be easy enough to tell your status when it gets to be tax time. Taxes is a little bit like a game. Everyone has to pay something, but the object of the game is to pay as little taxes as possible within your legal rights and guidelines.

Audit Flags

When it comes to taking deductions of any type - for your Schedule C., to itemize or whatnot - taxpayers need credit card statements and receipts in case of an audit. Large ticket items like computers and heavy equipment are especially susceptible. Let your audit trail be as clear as possible.

Are you a home owner?

The last of the Mohicans - Mortgage Interest, and Home Office expenses
The last of the Mohicans - Mortgage Interest, and Home Office expenses

Itemized Options

A List of Possible Deductions

· Mortgage interest

· Real estate taxes

· Health care premiums if you're self employed

· Medical expenses over 7.5% AGI

· Unreimbursed work expenses

· Charitable contributions

It pays to do the Math.  If you keep an eye on expenses as you go, it's not so painful to round up the numbers from 12 spreadsheets in the Spring.
It pays to do the Math. If you keep an eye on expenses as you go, it's not so painful to round up the numbers from 12 spreadsheets in the Spring.
The grand-daddy of all tax software packages.  It does the job!
The grand-daddy of all tax software packages. It does the job!

Moving for your Job

The fifty mile rule applies - so make sure you qualify.  If you do, congratulations!  Be sure to document everything.
The fifty mile rule applies - so make sure you qualify. If you do, congratulations! Be sure to document everything.

Tax Software is a Deductible Expense

Tax Software

If you figure your tax return is not that complicated - but would rather use a program than doing it the "old fashioned way", consider buying a tax software package. There are many out there, Turbo Tax being among one of the first.

A little bit trickier

For those who might have a self-employment, real estate or passive income sources, you might be better off in the long run to go out and find a qualified tax professional with a great recommendation. These experts can save you more money. A good tax preparer is more often times than not worth their weight in gold. They should be a detective, thinking of things that you never thought of. This type of person is a good one to have around, and most likely will end up saving you more money than if you bought software and used the program even with the allowable tax software deduction.

Minimize your Tax / Maximizing your refund

In one sense, the best case scenario is to owe as little as possible or break even.

A tax refund should not be thought of as a savings account. Notwithstanding the PATHETIC interest rates at the bank, it is still a better idea in principal to have the money in your hand and accessible when you need it on a month by month basis than wait for it to return to you six to twelve months later. If you have the will power, try to save it or invest it so it will pay off for YOU instead of "lending it to Uncle Sam". Based on the time value of money, its value will probably be less.

Changes that took place in 2011

As far as tax deductions are concerned, a person needs to think-think-think about how it affects them. For example, did marital status change – did you get married, separate, become widowed? Child care expenses may apply. Did your teenager begin attending college? These factors affect the picture you provide the I.R.S. of your taxable income and deductions.

Dollar for Dollar

Retirement

There is one nice dollar for dollar deduction, and that is retirement savings. It's not very much money, but better than nothing: Under the Savers Credit program, you can deduct this savings with contribution limitations of $1000 (Single) or $2000 (MFJ).

Homeowners' Advantage

Having a home means mortgage interest deduction. This is not usually a significant amount of money, but it does help if you are itemizing your deductions. The bad news for 2011: the first time homeowner deduction no longer automatically applies after 2010, although military personnel may take the deduction.

Again, Schedule C is an Ace

Homeowners that have a small business on the side – doing tax returns, writing freelance or their own blog – can deduct a portion of their home as a home office expense. (Tattoo this on your forearm - it is one of those things that no one should forget! ! !)

Home office related expenses are recorded on the Schedule C, thus lowering adjustable gross income (A.G.I.) and ultimately lowering tax expense.

For those who are Employed Consider the following Related Deductions

Let's say you have a job (as a secretary, or a mechanic) but you are trying to get a different job (perhaps you expect to be laid off, or know that you are an endangered species - or just want to move on, plain and simple). If you are looking for a new job, even if you are currently employed, some expenses are deductible. For example if you join a professional organization which may give you a leg up, its membership fees can be deducted on your tax return. Printing your resume, travel expense to job interviews, and networking at club meetings or functions may also be deductible as long as you are not looking to significantly change your job position and/or have been unemployed for a long period of time.

First time job applicants are ineligible; this deduction applies to working professionals experiencing a gap between jobs or in some other type of transitional mode.

Moving Expenses

Here is the formula. This used to be a very juicy deduction, but now it has gone to the opposite end of the cycle and is, in my opinion, rather Puritanical. Your moving expenses are deductible if the distance between your new place of employment is more than 50 miles beyond your previous commute. If you moved to assume a new job, or the old job moved to a new location, you qualify under a time and distance requirement. The job must be a full time job of 39 hours a week over the course of a year, and the commute must have increased by 50 miles. But if you have "only" been working for six months at your new job and it's tax time, go ahead and take the deduction, because it is "reasonable" that you will continue working there into the future. In some of these matters, you have to read between the lines.

Itemize or take the Standard Deduction?

Will you take the Standard deduction or Itemize in 2011?

See results without voting

Take Action

Business networking leading to friendship and inside tips for new job openings is a crucial part of doing business, especially in a recessionary economy.
Business networking leading to friendship and inside tips for new job openings is a crucial part of doing business, especially in a recessionary economy.
Nickles and dimes add up - so keep track even if it seems silly in the beginning.  You may find that you have more itemized deductions than you think!
Nickles and dimes add up - so keep track even if it seems silly in the beginning. You may find that you have more itemized deductions than you think!

Expense Ideas and Options to track as you go

Almost everyone agrees that in 2011 Americans in particular got increasingly more frugal about our expenditures and life habits. Coupons became cool a few years ago, nowadays no one can live without them! With the world wide recession still baring its teeth, Americans got increasingly careful about where the money went. Many of the new cost saving tricks are things that Europeans have been doing for decades. Generally speaking, times of recession and prosperity go in a cycle, so sooner or later things will probably change again (to an extent)!

Taxes are just like any other thing - something you know you have to do, so use all the tools you can to make it enjoyable and almost a connect the dots game.

Regarding expenses, the ideal situation is keeping a “pay as you go” Excel spreadsheet showing medical, professional and other qualified expenses incurred throughout the year. This saves time, aggravation, and even worse, lost deductions that you can legally use to lower your tax bill - that in itself is a coupon worth a-clipping.

More by this Author


Comments 3 comments

alocsin profile image

alocsin 4 years ago from Orange County, CA

Some good ideas just in time for the tax deadline. I love the Schedule C form as well. Voting this Up and Useful.


EuroCafeAuLait profile image

EuroCafeAuLait 4 years ago from Croatia, Europe Author

Thanks, Alocsin. I hope that you and I and all the Hubbers will have hefty passive income from our income generating Hubs - if not in 2011, then in 2012 for sure! Thanks for voting me up too :)


EuroCafeAuLait profile image

EuroCafeAuLait 4 years ago from Croatia, Europe Author

It's always better to file an extension than to file a tax return that's less than complete. Give yourself a little time to get the best possible return - you deserve it. In the US I had my own tax firm and you can't believe how many people file extensions!

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.


    Click to Rate This Article
    working