Tax Tips

Number 1 – Rentals

Due to the unfavorable housing market, many Simplified clients have recently transitioned their personal residences into rental units. It's a good move – changing a home into a rental unit can help both to cover the carrying costs, and produce a tax deduction. In fact, up to $25,000 worth of rental losses may be deductible each year, making quite a difference on your tax return. Deductible expenses include not only real estate taxes and mortgage interest, but also insurance, utilities, repairs and even mileage. Taxable net rental income, or deductible rental loss, is calculated by subtracting the total of these expenses, and a calculated amount for depreciation, from rental income received from your tenant. The tax rules are complicated, but our tax professionals can answer your questions and assist with tax calculations and cash flow analyses.

Number 2 – Children

When it comes to tax deductions and credits related to children, there is a lot to consider! Subject to various limitations and other qualifiers, a few significant credits include: 1) Child Tax Credit - $1,000 per child under the age of 17; 2) Earned Income Credit – up to $5,700; 3) Child and Dependent Care Credit for working parents with children under 13 - up to 35% of your daycare costs to a max of $3,000 for one child or $6,000 for more than one child. The rules defining a "child" are more complicated than they should be, and the credits are subject to income limitations, so be sure to contact a tax professional to find out if you qualify.

Number 3 – Education Credits

There are several great tax credits and deductions available for education expenses. The American Opportunity Tax Credit allows a credit for 100% of the first $2,000 of qualified education expenses. The total credit can be as high as $2,500 and is 40% refundable – meaning that you can receive the credit even if it exceeds your tax liability. Eligible expenses include books and supplies, in addition to tuition, and the credit can be claimed even if you financed the expenses with education loans. There are certain restrictions, so be sure to contact a tax specialist to find out if you qualify.

Number 4 – Michigan Retirement Changes for 2012

Michigan residents: No significant changes for the 2011 returns, due in April of 2012. But it's important to keep in mind changes that take effect in January, 2012, and to make necessary adjustments to Michigan tax withholding and estimated tax payments. Beginning in January 2012, the taxation of retirement income is based on the taxpayer's year of birth. If you were born before 1946 - the rules stay the same as in prior years. If you were born after 1946, and before 1953, the maximum retirement income deduction is lowered to $40,000 for a married couple and $20,000 for singles. People in this category also do not pay tax on social security income. Retirees born after 1952 face a more complicated set of rules related to taxation and exemption of retirement income. The age of the older spouse determines which rules apply to you. Be sure to contact one of our tax professionals with any questions you may have.

Number 5 – Job Hunting Expense

The IRS allows a miscellaneous itemized deduction for expenses incurred while searching for a new job in your current line of work. Fees paid to recruiters, costs of producing your resume, as well as advertising expenses you might have incurred, are all examples of expenses that qualify. In addition, local and out of town travel expenses are deductible while traveling for interviews. Job hunting expenses are deductible whether or not you found employment. You must itemize deductions in order to claim these expenses and there are certain income limitations that apply, so be sure to contact one of our tax professionals to find out if this deduction will work for you.

Number 6 – Michigan Donation Credit

2011 is the final year that Michigan offers a 50% credit for certain charitable donations. Cash contributions to Michigan based homeless shelters and food banks qualify. Let's say, for example, that you are in the 25% federal tax bracket. If you contributed $400 to a Michigan food bank your total federal and Michigan tax savings would be $300. That means you were out of pocket only $100, but $400 went to a great cause. Certain public institutions in Michigan like colleges or universities as well as public libraries qualify. In addition certain community foundations also entitle you to this credit in 2011. There are limits and restrictions so be sure to contact a tax professional to find out if you qualify.

Number 7 – Homestead Property Tax Credit

Thanks to the Homestead Property Tax Credit, Michigan might also send some extra money your way, at least in 2011. Don't let the name "property tax" credit fool you, because rent payments as well as property taxes may qualify. The credit is calculated by comparing your total household income to the property taxes or the rent you paid in 2011. The credit tops out at $1,200. Even if you don't normally file a Michigan tax return, the Homestead Property Tax Credit, alone, might give you an incentive to file a 2011 Michigan return. If you are 65 years or older the credit is expanded. The rules change for 2012, and, of course there are certain restrictions, so be sure to contact one of our tax specialists to find out if you qualify.

Number 8 – Michigan Changes for 2012

Many tax deductions and credits in Michigan have been eliminate or reduced as of January 1st 2012. The tax credits for donations and tuition have been eliminated while the Michigan Homestead Property Tax Credit has been significantly reduced. Also, the additional standard deduction for seniors and children has been eliminated, and taxation on retirement income is changed, as discussed in an earlier tip. If you count on any of these credits or deductions to help cover your tax bill, be sure to factor in the changes when doing your tax planning for 2012. You might need to increase your state withholding or consider estimated tax payments through the year. As always, it is important to contact a tax professional to find out how these changes might impact you.

Number 9 – Retirement Saving

If you make a retirement plan contribution you may qualify for a federal tax credit of up to $2,000. The credit ranges from 10% all the way up to 50% of what you contribute to your retirement plan. If your income is less than approximately $56,000 for a married couple or $28,000 for a single person, this credit might work for you. Even though we are now in 2012, you are still allowed to create and make 2011 contributions to certain retirement plans. This is one of those few cases where you can talk it through with your tax professional during your 2012 appointment, and still make a decision that will impact your 2011 tax return. There are rules to keep in mind, so remember to contact one of our tax specialists to find out if you qualify.

Number 10 –Vehicles

Vehicles are deductible in a wide range of situations - this tax tip will focus on different standard mileage rates. "Charitable" miles are deductible at 14 cents per mile. The deduction for medical or moving miles is 19 cents per mile for the first half of 2011, and then 23.5 cents per mile for July 1 to December 31, 2011. Mileage for business travel is the highest: it is set at 51 cents per mile for the first half of 2011. Due to higher gas prices the business mileage rate jumped to 55.5 cents after July 1st. Don't forget to contact one of Simplified's tax professionals to find out if you qualify for one of the mileage deduction.

See more tax tips: 2014, 2013, 2012, 2011

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