Taking full advantage of the breaks you deserve may reduce your tax burden or get you a bigger refund from the IRS. Keep in mind that the sooner you file, the sooner the government can return your money.
The average tax refund was $2,994 in 2010.
Weigh the benefit of itemizing your deductions, such as those for interest payments on a home mortgage, property or sales taxes, and charitable donations, against the standard deduction.
Two out of three taxpayers take the standard deduction, but seven in ten homeowners with a mortgage choose to itemize.
Don’t overlook potentially valuable deductions for these common situations:
• If you are supplying housing or financial support for a struggling relative, you may be eligible to claim them as dependent or qualify for a more favorable head-of-household status.
• You can deduct medical bills that exceed 7.5% of your adjusted gross income (AGI); only self-employed individuals who do not qualify for a workplace health plan can claim their insurance premiums.
• Certain college expenses up to $4,000 may count as a deduction if your income excludes you from the more generous education taxcredits offered for 2010.
• Money spent looking for a job in your current field may also qualify if miscellaneous deductions total more than 2% of your AGI. If the new position is more than 50 miles away, moving expenses can also be deducted—even if you don’t itemize.
• If you use a part of your home exclusively for business and can prove it is your principal office space, you may qualify to deduct a portion of your housing expenses.
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Home Sweet Tax Shelter
If you responded to generous home-related tax incentives offered in 2009 and 2010, make sure you file the necessary forms and supporting documentation to collect your credit.
Homebuyer Tax Credit: First-time buyers, or others who have not owned a home in the previous three years, may collect up to $8,000 if they signed a contract by April 30 and closed by September 30, 2010. Move-up buyers who have owned their existing home for at least 5 years and purchased another property after November 6, 2009 can receive up to $6,500. In both cases, eligible homes must be purchased for $800,000 or less and as principal residences (not rental properties).
Energy-Saving Home Improvements: You can receive a credit of 30% of the cost, up to $1,500 max, if you made certain energy-efficient upgrades to your existing primary residence.
Eligible improvements may include appliances, water heaters, heating and cooling systems, windows and doors, insulation and roofing projects, among others.
Tax credits reduce your tax liability dollar for dollar and can really add to your bottom line.