Best Tax Breaks 2011

A new year is underway and that means that the tax return deadlines are getting closer. Many of us are figuring up what we owe on our 2010 taxes, and trying to decide how to do things for 2011. Some of the common evergreen tax breaks include a mortgage interest deduction, deductions for charitable contributions, certain retirement plan contributions, and tax credits for earned income and for child care.

During tax year 2010, there were some tax breaks that included green home improvements, homebuyer tax credits and the making work pay tax credit. These are tax breaks that, if you are eligible, you should make sure you are taking now.

But it is also a good idea to plan for what tax breaks you can consider in 2011. Even if you take the standard deduction this year think ahead to the other deductions you might qualify for in the future – and whether they might make itemizing worthwhile. 

Your evergreen tax breaks, like mortgage interest, certain retirement contributions and charitable donations, should be considered. But you should also plan for some other tax breaks that will be offered just this year:

Energy efficiency tax credits: While not as generous as the tax credit in 2009-2010, the new tax credits for 2011 can still provide you with a tax credit when you buy new windows, insulation, water heaters and biomass stoves.  While requiring a bigger expenditure, the tax breaks from the residential energy efficient property credit for installing solar, wind, or geothermal systems are worth 30% of the amount spent.

Social Security tax break: The payroll tax cut means you are seeing a reduction in what you pay in Social Security taxes. For the self-employed, this means that you will need to remember to figure in the reduction for the “employee” portion of your Social Security taxes (not the “employer” portion).

Child tax credit: This goes down to $500 for tax year 2011. But for tax year 2010, you still get $1,000. Tax year 2011 will also see reductions in child care tax credit and changes to the way the Earned Income Credit is figured.

Student loan interest: The rules for student loan interest will change in 2011. Don’t forget to take your deduction for student loan interest paid in 2010. Starting in 2011, the interest is only deductible for the first 60 months of repayment, and there is a phase out.

Commonly Overlooked Tax Deductions
As you consider 2010, think about what you spent money on — and whether the expense could be tax deductible. One way to make sure you don’t miss anything is to use tax prep software like Turbo Tax or some of the other top tax software packages.  As you begin tax planning for 2011, remember these deductions so that you can save the proper documentation you need for your federal tax forms – here are some commonly overlooked tax deductions:

Medical expenses: You know you get a tax deduction for contributions to your FSA or HSA. However, you can also get a tax deduction for medical expenses, non-reimbursed and not covered by your health insurance plan. You can itemize these as long as they amount to at least 7.5% of your AGI. (That threshold increases to 10% in 2013.)

Moving expenses: This is an above the line deduction that can help you reduce your AGI. If you move more than 50 miles to start a new job, you can deduct your moving expenses and many of the travel expenses associated with moving your stuff.

Job hunt expenses: As long as you are looking for a new job in the same career field, you can deduct the cost of resume services, travel to interviews, and career coaching that you might get.

Taxes paid elsewhere: Don’t forget that there are tax deductions for taxes you pay to other entities. You get a deduction for property taxes paid, as well as for state/local income tax. If your state doesn’t require you to pay income taxes, you can get a deduction for the sales tax you paid.

With the right planning, you can get ready for another year, and reduce your tax liability.

Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

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