2011 Changes Offer Tax Benefits to Almost Everyone Two Extra Days to File and Pay Taxpayers across the nation will have until Tuesday, April 17, 2012, to file their 2011 income tax returns and pay any taxes due. Taxpayers have extra time because April 15 falls on Sunday, and Emancipation Day, a holiday in the District of Columbia, is observed the following day on Monday, April 16. By law, filing deadlines that fall on D.C. holidays are extended to the next day that is not a Saturday, Sunday, or holiday. The April 17 deadline applies to any return or payment normally due on April 15. It also applies to the deadline for requesting a tax-filing extension and for making 2011 IRA contributions. Tax Benefits Extended Legislation, enacted in December 2010, extended several popular tax benefits, including the American opportunity credit for parents and students, the enhanced child tax credit and the expanded Earned Income Tax Credit. Details on these and many other deductions and credits are in Publication 17. Limited Nonbusiness Energy Property Credit Available in 2011 This credit generally equals 10 percent (down from 30 percent the past two years) of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down from the $1,500 combined limit that applied for 2009 and 2010). In addition, the energy standards are increased for most property; windows, exterior doors and skylights, for example, must meet Energy Star Program requirements. Because of the way the credit is figured, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2011. That’s because homeowners must first subtract any nonbusiness energy property credits claimed on their 2006, 2007, 2009 or 2010 returns before claiming this credit for 2011. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not. See Form 5695 and its instructions for details. Repayment of First-Time Homebuyer Credit Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally make the second of 15 annual repayment installments on their 2011 return. Report this repayment on Form 1040 Line 59b. Separately, a repayment requirement also applies where a taxpayer purchased a home and claimed the credit on a prior year return and then sold it or stopped using it as a main home in 2011. Use Form 5405 to report the repayment. Though the credit has expired for most homebuyers, certain members of the armed forces and some other taxpayers who bought a home early in 2011 may still qualify for the credit on their 2011 return. See Form 5405 and its instructions for details. Standard Mileage Rates Up in 2011 The standard mileage rate for business use of a car, van, pick-up or panel truck is 51 cents a mile for miles driven during the first six months of 2011 (January through June) and 55.5 cents a mile for the rest of the year, up from 50 cents for 2010. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 19 cents a mile from January through June and 23.5 cents a mile after that, up from 16.5 cents per mile in 2010. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile. AMT Exemption Increased For tax-year 2011, the alternative minimum tax exemption increases to the following levels: $74,450 for a married couple filing a joint return and qualifying widows and widowers, up from $72,450 in 2010. $37,225 for a married person filing separately, up from $36,225. $48,450 for singles and heads of household, up from $47,450. Health Insurance Deduction for Self-Employed People In 2011, eligible self-employed individuals and S corporation shareholders can use the self-employed health insurance deduction to reduce their income tax liability. Eligible taxpayers still claim this deduction on Form 1040 Line 29. Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. In addition, premiums paid to cover an adult child under age 27 at the end of the year, also qualify, even if the child is not the taxpayer’s dependent. However, the deduction from self-employment income for determining self-employment tax, which was available only in tax-year 2010, no longer applies. As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. For details see Publication 17 and the instructions to Form 1040 (including a worksheet). Change for HSAs and MSAs Starting in 2011, the additional tax on distributions from a health savings account (HSA), not used for qualified medical expenses, increases from 10 percent to 20 percent. Report on Form 8889. Similarly, the additional tax on distributions from an Archer medical savings account (MSA), not used for qualified medical expenses, rises from 15 percent to 20 percent. Report on Form 8853. For further information about these changes visit the IRS website at http://www.irs.gov. Tax Tips Six Year-End Tips to Reduce 2011 Taxes Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible even if the bill isn't paid by Dec. 31. If you donate clothing or household items, they must be in good used condition or better to be deductible. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov. EITC – Don’t Overlook It When can I expect my refund? Ten Tax Benefits for Parents Tax Tips for Self-employed Individuals How to Get Your Prior Year Tax Information from the IRS Tax Credits to Help Pay Higher Education Costs The Health Coverage Tax Credit (HCTC) Program Here is What to do If You Are Missing a W-2 Are Your Social Security Benefits Taxable? Taxable or Non-Taxable Income? Tax Benefits for Disabled Taxpayers Five Tips if You Changed Your Name Due to Marriage or Divorce   Tax Refunds and Payment Options  If you are receiving a tax refund it is always nice to have alternatives and the ability to track your refunds. You have more options such as splitting your Federal refund with direct deposits into two or three checking or savings accounts by using Internal Revenue Service Form 8888. With split refunds, you have a convenient option for managing your money by sending some of your refund to an account for immediate use and some for future savings with the speed and safety of direct deposit. Whether you file electronically or on paper, direct deposit gives you faster access to your refund than a paper check. Both the IRS and SC Department of Revenue give you the ability to get to your refund information on their website. If you are required to pay income taxes you may pay your tax liability in various ways. You may pay electronically, by check or money order or by credit card. If you are unable to pay your full liability you should consider a home equity loan. The interest rate a bank charges is usually lower than the combination of interest and penalties imposed by the Internal Revenue Service and the SC Department of Revenue. If you cannot pay in full, the IRS offers short-term extensions from 10 to 120 days or a payment by installment option. An installment agreement would allow you to make a series of payments over time. Installment agreements may be set up in various ways such as direct debit from your bank account, payroll deduction from your employer or regular installment agreement. If you enter into an installment agreement, your payment amount should be based on your ability to pay and should be an amount that can be maintained over the duration of the installment agreement. For more information please visit the internal revenue service website at www.irs.gov or the SC Department of Revenue website at www.sctax.org.