As the new year approaches, the Internal Revenue Service (IRS) is offering advice for 2011 tax returns, from tax credits, to retirement accounts.
“Georgia taxpayers should review and gather documents now as part of their year-end tax planning,” said IRS Spokesman Mark Green.
Green said local taxpayers can take the first step to prepare for the upcoming tax season, by reviewing tax law changes at the IRS web site.
The IRS spokesman pointed to retirement accounts. “This year, you can contribute up to $5,000 in an IRA, as well as another $16,500 to a 401(k) employee plan,” Green said. “If you’re 50, or older, those numbers go up to $6,000, and $22,000, respectively.”
Green reminds taxpayers to keep documentation of their cash contributions to charities. He said taxpayers must itemize deductions on their tax return to claim charitable contributions, and must have a bank record or a written communication from the qualifying charity showing the name of the charity and the date and amount of the contribution.
A bank record would include a canceled check, a bank or credit union statement, or a credit card statement.
“Taxpayers may make gifts of up to $13,000 per person and exclude the amount from the gift tax,” he added. “Those receiving the gift are not required to pay taxes on the amount received. The lifetime exception for 2011 is $5 million.”
Taxpayers who may qualify for the Earned Income Tax Credit (EITC) should use the EITC Assistant on the IRS web site. The site helps determine taxpayer eligibility for the credit.
“The program will also assist you in determining your correct filing status, determining whether your child meets the tests for a qualifying child, and estimating the amount of credit that you may receive,” said Green. “Taxpayers who earn[ed] less than $49,078 in 2011, may be eligible for a refundable tax credit of up to $ 5,751.”
There are two federal tax credits available to help taxpayers offset the costs of their higher education, and the higher education of their dependents. The credits are the American Opportunity Credit and the Lifetime Learning Credit.
“To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent,” Green noted. “The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, the student cannot file for the credit.”
Green said the American Opportunity Credit can be worth up to $2,500 per eligible student, and is available for the first four years of post-secondary education. The Lifetime Learning Credit can be worth up to $2,000 per eligible student, but is available for all years of post-secondary education and for courses to acquire or improve job skills. He said income limits and other restrictions apply.
Educators who used their own funds to purchase items for use in the classroom also may be able to deduct up to $250 of those expenses on their tax return when they itemize deductions.
The IRS spokesman urges taxpayers to maintain good records throughout the year to ease the process of filing income taxes during tax season.
“The more organized your records are, the easier it will be to complete your tax return next year,” said Green. “There is no substitute for good records. A good record-keeping system can help ensure that you don’t miss out on any credits or deductions when you file your tax return.”
To learn more about tax credits and deductions, visit the IRS web site at www.IRS.gov.