Time for a New Years Quiz: What do all of the following personal expenses have in common?
• Doctor and dentist fees
• Prescription medication costs
• Health insurance premiums
• Charitable contributions
• Property taxes
• Unreimbursed employee expenses
• Gambling losses
• School loan interest payments
• Job skills training fees
• Job hunting expenses
According to veteran Northeast Philadelphia tax accountant C. Thomas Maniaci, all of the above expenses and many others may qualify as itemized deductions on personal income tax returns.
With the deadline for filing less than three months away (it’s on April 17 this year, two days later than usual, due to a couple of calendar quirks), and with employers starting to send out W-2 forms, folks already should be thinking about how to maximize their refunds or minimize their taxes owed for 2011.
Each year, Maniaci said, many taxpayers need reminders on many of the credits and deductions available to them, even if they choose not to itemize and opt instead for the standard deduction.
“Unfortunately, a lot of people don’t know about or forget about the Earned Income Tax Credit or the Child Credit,” he said. “The IRS wants us [tax professionals] to let people know to take advantage of the things they should take advantage of.”
The Child Tax Credit is $1,000 per dependant age 16 or under, regardless if the taxpayer itemizes or claims the standard deduction. The same holds true for the Earned Income Tax Credit, which is applied on a sliding scale to families that earned less than $49,078 in 2011.
Standardized deductions remained stationary for tax year 2010, but increased for 2011. Single filers now deduct $5,800, a $100 increase over 2010, while married couples filing jointly get an $11,600 deduction, a $200 increase.
Single filers who qualify as a Head of Household are now eligible for an $8,500 standard deduction, $100 more than in 2010.
Maniaci, who opened his Mayfair office at 6722 Frankford Ave. in 1968, will be emphasize several other tax law changes for his clients.
For the first time, the IRS is requiring that tax filers report any interest earned on savings bonds that have reached maturity, even if the bonds were not redeemed.
Further, tax filers must now report foreign bank accounts and foreign financial assets they hold if the total value exceeds $50,000. In prior years, the IRS required only that foreign income must be reported.
“If [the assets] are under fifty thousand dollars, you just report the income like you did before,” Maniaci said.
Also for the first time, the Pennsylvania Department of Revenue has included space on its form PA-40 for tax filers to report any purchases in which sales taxes were not paid, although the merchandise qualifies as a sales-tax item. Typically, this provision applies to purchases made out-of-state or via mail order.
“Say you went on the Internet and bought some furniture and had it delivered from South Carolina. Technically speaking, you’re supposed to pay seven percent (state sales tax) on that,” Maniaci said.
Previously, Pennsylvania residents were expected to file a separate form to report and pay outstanding sales taxes.
Taxpayers should keep in mind several other common credits, deductions and benefits when preparing personal tax returns, according to Maniaci.
Those who fall into the 10 percent to 15 percent bracket — singles who made up to $34,500 or married couples who made up to $69,000 — are exempt from capital gains tax. And those wishing to report net capital losses can claim up to $3,000 in a single year. Any additional losses may be carried over to an ensuing tax year, however.
Unfortunately, Maniaci noted, people who lost value on their retirement plans may only claim the losses after cashing out the investments.
Folks who made green improvements to their homes in 2011 may be eligible for the Non-Business Energy Property Credit or the Residential Energy Efficient Property Credit. The non-business credit has a cap of $500, along with additional caps on each individual improvement. The residential energy credit amounts to 30 percent of the cost of qualifying improvements.
The energy credits cover improvements such as doors, windows, solar electric systems, solar water heaters, geothermal heat pumps, wind turbines and fuel cell properties. As credits (and not deductions), these improvements reduce the amount of tax owed dollar for dollar.
Maniaci noted that many homeowners are choosing to invest in improvements to their existing homes due to the slow real estate sales market. Those investments could pay immediate dividends at tax time.
College students may be eligible for up to $2,500 through the American Opportunity Credit, as well as up to $2,000 through the Lifetime Learning Credit. Also, students may deduct contributions to Pennsylvania’s 529 College Plan on their state returns. The maximum student loan interest deduction is $2,500 per year.
Working-age adults who contribute into an IRA or 401k retirement plan may be eligible for a credit ranging from $200 to $2,000 depending on their income.
Property owners could be eligible for a rebate of $250 or more on a portion of their real estate taxes depending on their income.
Electronic filing has revolutionized the tax filing process in recent years, but despite the prevalence of easy-to-use and inexpensive tax filing software, Maniaci contends that working with a live tax consultant is still the way to go for a better outcome.
“[E-file] is much faster and much, much more accurate, but with the e-file programs, all they have you do is input information on the forms,” he said. “[The programs] ask questions, but they’re not fully complete. It would be impossible for them to give you all of the questions and answers, stuff that’s important that may be overlooked.” ••