8 ways to save on your taxes

Keep more of your money this April with these tips from a local expert
211 Taxes

1 Fund an individual retirement account (IRA).

“You can still put money in a 2010 IRA until April 18,” says tax preparer Nick Kounios, an enrolled agent with Pinnacle Taxx in Mount Kisco, “and accountants sometimes don’t think to offer that.” Adding to your IRA—if you’re sure you can afford it—can reduce your tax obligation. (The deductibility of IRA contributions is phased out at certain income levels if you’re an active participant in an employer-sponsored retirement-savings plan such as a 401K plan, but you may still qualify for a deduction—ask your tax preparer.)

2 Report first-time home buyer’s credits.

You probably know this credit was extended to include homes bought by May 1 of last year. But did you buy a first home in 2008? That year’s credit was temporary, and its 15-year repayment period began last year. “A preparer who is new to you may not bring it up,” warns Kounios, “but repayment is treated as a tax and should be reported on the ‘Other Taxes’ section of Form 1040.” Otherwise, you risk a penalty.

3 Deduct job-search expenses.

If you had to scramble for a new job in 2010’s tough economy, you’re not alone. However, while most relocating expenses for that new position aren’t deductible, expenses from the search itself are. Think cell phone charges, resume-prep fees including printing, union dues, train and plane fares, gas mileage, tolls and parking (but not, alas, that spiffy new suit for the interview). Include these on Schedule A—even though it doesn’t specifically request them.

4 Claim education credits.

Did the economy propel you back to school in 2010, costing you tuition dollars? Claiming one of two tax credits on Form 8863 may offer relief. The American Opportunity Credit (AOC), which debuted in 2009, covers—for the first four years of post-secondary education—100 percent of the first $2,000 of qualified tuition or related expenses and 25 percent of the next $2,000, to a total credit of $2,500 per student. (Triple that if there are three college students in the family!) Then there’s the Lifetime Learning Credit, which covers 20 percent of the first $10,000 in tuition paid. Ask your tax preparer which education credit is better for you. Each is phased out at certain income levels, which are lower for the Lifetime Learning Credit, where phaseout begins at a household income of $100,000 for married couples filing jointly.

5 Deduct interest on student loans.

If you paid interest in 2010 on a qualified student loan, those payments are deductible with a limit of $2,500 per year up to certain income levels, says Kounios.

6 Deduct long-term care insurance premiums.

If you’re claiming medical expenses as deductions (allowable if these expenses, including regular health insurance premiums, exceed 7½ percent of your adjusted gross income), you should know that premiums for long-term care insurance are deductible on Schedule A. Watch out, says Kounios: Skipping this form (as some do when their paid-off homes don’t qualify them for the home mortgage interest deduction, so they don’t itemize), can mean missing a credit on your New York State income taxes. 

7 Report health savings account activity.

These accounts (not to be confused with flexible spending accounts) are offered by a growing number of employers to employees who choose health insurance plans with low premiums and high deductibles—they’re a way of putting money aside to pay medical expenses tax-free until you meet those deductibles. You can deduct contributions on your tax return. Check Form 1099-SA, which you’ll receive from the plan sponsor, and be sure to report contributions and distributions—or you’ll risk a fine.

8 Report cancellation of debt.

Also more common in the difficult economy are consumers who are getting credit-card companies and other creditors to resolve debts at a discount. To the government, this discounted portion is taxable income. Don’t forget to check carefully the Form 1099-C you receive to make sure the amount is correct, and report this amount on line 21 of your Form 1040 to avoid penalties and headaches later. Also, says Kounios, check with your tax preparer if you get a 1099-C, as there may be ways to reduce your tax obligation.

Categories: Morris/Essex Health & Life