Looking for 2011 Tax Relief? There’s
Still Time
Tips for Saving on Your Income Tax
By Jessica James*
If you’re just beginning to
think about your 2011 income tax return, you’ve got a late start – but
it’s still not too late to cash in on some savings.
“A lot of the deductions associated with the economic stimulus package
will disappear in 2012, so if you want to take advantage of them, you’ve
got only until Dec. 31,” says Jessica James, CPA and author of Justice for None (www.AuthorJessicaJames.com),
an insider look at IRS tactics in a tax fraud investigation and trial.
But, she says, there’s still plenty of time for some other measures to
ease your share of the tax burden. Now is also a good time to resolve to
start earlier in 2012 to minimize that year’s tax bill. Here are some
tips for both 2011 and 2012 savings:
• Contribute to
retirement accounts. If you haven’t already put money into your
traditional or ROTH IRA account for 2011, you’ve got until April 17 to
do it. If you have a Keogh or SEP (Simplified Employee Pension Individual
Retirement Arrangement for businesses), and you get a filing extension to
Oct. 15, you’ve got until then to make your 2011 deposits. The maximum
IRA contribution for 2011 is $5,000, or $6,000 if you’re 50 or older by
the end of the year. For self-employed people, the maximum for SEPs and
Keoghs for 2011 is $49,000.
• Don't fear
the home office deduction. In the past, many tax filers didn’t
claim a home office deduction because it was seen as an IRS red flag. But
the requirements and forms have been clarified so people can do that
properly – and not make mistakes that can lead to an audit. Also, the
rules have been expanded so more people can claim the deduction. If you
use a home office exclusively for business, even if you don’t meet your
clients there, you’re eligible. For instance, a handyman who does his
work other people’s houses can claim the deduction if he does his
paperwork at his home office. Another change is that, in the past, if you
claimed 10 percent of your home as an office, that amount would not be
included in the $250,000 tax-free profit from the home’s sale that’s
allowed for an individual by the IRS. Be sure to make your claim
reasonable, or it will get questioned; a $25,000 home office deduction for
a business with $50,000 annual gross revenue is not reasonable.
• Maximize your
Flexible Spending Account. The Health Care Act will limit the
maximum you can put into these pre-tax medical expense accounts in 2013.
So 2012 is the last year to use an FSA to pay for orthodontics and other
large medical expenses using pre-tax earnings. A medical expense flexible
spending account, or FSA, allows you to use before-tax earnings to pay for
medical or health care expenses not covered by your health insurance.
Assuming a 25 percent tax rate, you avoid $25 in taxes for every $100 you
spend from your FSA.
• Need to sell
an investment? Next year may be the time. The Tax Relief Act
maintains the tax rate cap on capital gains and dividends at 15 percent
through 2012. In 2013, the cap for capital gains will increase to 20
percent and for dividends, 39.6 percent. The Health Care Act also created
a 3.8 percent Medicare tax on investment income, effective in 2013. Given
those scheduled increases, plan to take advantage of the rates next year.
James is an author pseudonym
used because she fears her novel may provoke IRS retaliation. It’s a
fictionalized account of her experience as a minor player swept up in an
IRS probe that included anyone associated with the primary target, a
corporation. She says that, though she was innocent of any wrongdoing, she
was coerced into accepting a plea deal by the IRS, which was bent on
amassing adjudications of guilt to justify the investigation’s expense.
She pled guilty to a count of falsifying a tax return and continues to
work as a CPA.
About Jessica James
*Jessica James is a CPA and
the author of a novel, Justice for None, about her experiences
as a minor target in a major federal tax fraud case. After her
ordeal, she decided to write about it as a warning to others who think
they can take on the government and win.
If you would like to run the above article, please
feel free to do so. I am able to provide images if you would like some to
accompany it. If you’re interested in interviewing Jessica James for a
feature/Q&A or having her write an exclusive article for you, let me
know and I’ll gladly work out details. Lastly, please let me know if
you’d be interested in receiving a copy of her book, Justice For None, for possible
review.
