Massage & Bodywork

March/April 2012

Issue link: https://www.massageandbodyworkdigital.com/i/81195

Contents of this Issue

Navigation

Page 77 of 132

The filing deadline for 2011 federal income taxes is not far off, but you still have time to make sure you've done everything you can to keep as much of your money as possible. Earning money is tough enough; keeping it is even harder. Here are some last-minute ways to do that by reducing your 2011 income tax bill. This article is intended for informational purposes only and not as specific tax advice. For more information, contact your tax advisor. If you live in a high tax state such as Ohio or Massachusetts, you're probably better off continuing to take the deduction for state income and property taxes. However, for residents of states like Florida and Texas, which have no separate income tax, the sales tax deduction can significantly reduce federal taxable income. Can't find your sales receipts? Not to worry: the 1. SAVE MORE FOR RETIREMENT One of the most important tax-savings steps you can take is contributing the maximum to your 401(k) or other tax-deferred retirement plan. If you haven't done so, max out your retirement savings now by bringing your contribution up to the legal limit. For 2011, you may put as much as $16,500 into a 401(k), 403(b), or 457 plan. If you're over age 50, you may add an additional $5,500. Every dollar you contribute means you will pay less income tax. Except for the new Roth IRA, all contributions to tax-deferred retirement plans are tax deductible in the tax year for which you make your contribution. If you're in the 28 percent tax bracket, for every $100 you contribute, your federal tax bill decreases by $28. Your total savings will actually be higher when you factor in savings on state taxes. Obviously, the higher your tax bracket, the higher your savings. This is "found" money. Whatever you do, don't walk away from it. Of course, many people are not in a position to contribute the legal maximum, especially in this economy. If you can't come up with the maximum, bump up your contribution as much as you possibly can. It may seem painful now, but you'll benefit greatly in the future. You must make your contributions no later than the time you file your 2011 return, and you may make deposits for 2011 only in accounts that you opened prior to December 31, 2011. 2. DON'T FORGET SALES TAX Do you still have records of large purchases made in 2011? You now have a choice of deducting either your state and local income taxes or state and local sales taxes, but not both. Internal Revenue Service (IRS) has developed tables that allow you to estimate, based on your gross income, how much state sales tax you probably paid. You'll find the tables on the IRS website: www.irs.gov. Type "estimated state sales tax" in the search box to get the calculations. 3. HAVE KIDS IN COLLEGE? If you're dishing out big bucks for college tuition, you might be able to get some of them back. There are two education credits and a tuition deduction for which you may be eligible. A credit reduces the taxes you owe dollar for dollar. A deduction reduces the taxes you owe by a percent of every dollar you deduct. For example, a $100 credit reduces your taxes by $100. A $100 deduction reduces your taxes by $100 times your tax bracket. If you're in the 28 percent bracket, your $100 deduction will reduce what you owe by $28 ($100 x 0.28). The Hope Scholarship Credit is for taxpayers whose children (or themselves) are in their freshman or sophomore years in college. It offers a maximum tax credit up to $1,800 for 2011. The Lifetime Learning Credit offers the possibility of a credit up to 20 percent of the first $10,000 in tuition you pay, for a maximum credit of $2,000; 2011 may be the last year for this credit. If your income is too high to qualify for either the Hope or Lifetime credits, you may be eligible to take a tuition deduction. Details and earnings limitations on education deductions and credits are complex, so it's best to check with your tax advisor to see if you are eligible. Also, don't forget the Child Tax Credit that has been extended through 2012. The Child Tax Credit allows you to claim a maximum $1,000 per qualified child. Remember, a tax credit is a direct subtraction from your actual taxes owed, which is much more valuable than a deduction. Celebrate ABMP's 25th anniversary and you may win a refund on your membership. ABMP.com. 75

Articles in this issue

Archives of this issue

view archives of Massage & Bodywork - March/April 2012