Taking all allowable tax deductions reduces your tax burden. Deductible items include children, home office and supplies, as well as medical and dental expenses. Business travel miles are also deductible. Tax deductions encourage certain behavior, such as donating money to charity or attending college, by allowing you to deduct a portion of the money you spend in those areas. (A comprehensive list of allowable deductions is located in the Resources section.)
Effective until 2012, the child tax credit remains in place. The credit is worth $1000 per eligible child. The tax credit differs from standard deductions because the credit is actually applied to the taxes you owe, rather than simply being counted as tax deductions. So, if you have two children eligible for the child tax credit, and you owe $2200 in taxes, simply crediting $2000 to the amount you owe means your total tax bill will be $200.
The earned income tax credit applies to those who earned income in the tax year. Depending upon your martial status and whether you are filing singly or jointly, as well as the number of children in your household, you can claim tax credits of up to $5,666 on your tax return, as of 2011.
If you have a room in your house dedicated to being a home office, you can claim it as a deduction. Certain restrictions apply, however, including making sure the office is not used for personal reasons. In addition, when you sell your house, the home office gets hit with the capital gains tax, since the capital gains tax exemption (up to $500,000) only exempts a personal residence. Since the home office is not part of the personal residence, it gets taxed as capital gains.
Different rates are available where mileage is concerned. Business travel provides for 51 cents per business mile, while mileage used for medical or moving purposes comes in at 19 cents a mile. In addition, if you use your vehicle to help out a charitable organization, you can deduct 14 cents a mile. Also, starting in 2011, business mileage deductions can be claimed if you use a for-hire vehicle, such as a taxi or a limousine.
If you’re itemizing on your tax return, medical and dental expenses can add up. While you can’t deduct cosmetic surgery, unless it is for medical reasons, you can deduct any medical costs related to either treating an illness or preventing an illness or condition. You can even deduct the cost of a weight-loss program if the aim was to treat a medical condition, such as obesity.
- Turbo Tax: Summary of Federal Tax Law Changes for 2010-2017
- Saving to Invest: Earned Income and Child Tax Credit Extension for 2011 and 2011
- Wallet Pop: Five Tax Tips, Tricks and Traps for Homeowners: Tara-Nicholle Nelson; February 2011
- IRS.gov: IRS Announces 2011 Standard Mileage Rates
- IRS.gov: Topic 502 - Medical and Dental Expenses
- tax forms image by Chad McDermott from Fotolia.com