Tax Tips @ Jimmerson & White Taxes & Financial Services, LLC

Have you heard or read about the changes with the child tax credit coming in the future?

Generally, a tax credit is a direct reduction in tax liabilities, and is usually put into place in order to encourage a certain behavior. Sometimes tax credits can even result in a refund. This is different from a tax deduction which only lowers your taxable income. Below are a few tax credit changes we will see in 2011 and a few weird ones that already went into effect.

  • Child Tax Credit Reduced – It was mentioned back in 2010 that the child tax credit may be cut in half to $500 per child. Not to worry, Congress and the Obama administration has passed a stop-gap tax cut package extending the $1000 tax credit. However, as before, there are income limitations for some taxpayers. For taxpayers filing jointly, the tax credit begins to phase out at $110,000 (AGI) and for taxpayers filing as single, the tax credit phases out at $75,000. This extension has been passed for 2011 and 2012.

  • Making Work Pay Tax Credit Gone – In the past workers were able to get a tax credit for 6.2% of their earned income with a maximum credit of $400 for single filers and $800 for married couples. In 2011, this tax credit has been replaced with the 1 year 2011 Payroll Tax Holiday. The payroll tax, or FICA portion of your paycheck tax withholding- which funds Social Security and Medicare, has been cut by 2% in 2011. The withholding rates for your Social Security taxes went from 6.2% to 4.2% for the 2011 tax year. The other 1.45% of your FICA taxes go to Medicare funding, and has remained unchanged.

    What does this mean for you? It means that for the average taxpayer, an estimated amount of $1000 was saved in taxes this year. A savings much better than a $400 credit for singles and $800 credit for families under the "Making Work Pay" tax credit.

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After researching the web, I found some uncommon, yet interesting, tax deductions you may have never heard of:

  • Medical Expenses Deductions:

    • Breast pump tax deduction – IRS has announced that breast pumps, which can cost as much as $300, could be deducted from taxes as a medical expense, if the total out-of-pocket medical costs add up to more than 7.5 percent of the person's income. According to Yahoo News, during a campaign focusing on childhood obesity in February 2011, Michelle Obama instinctively brought attention to the breast pump tax deduction after encouraging mothers to breast feed.

    • Waist Line Reduction – Losing weight could possibly lead to a tax deduction, as long as its medically justified. Examples of this are disease diagnosis like hypertension, obesity or heart disease from a physician. Costs associated with a weight loss program or procedure such as lap-band surgery for instance, could be written off.

    • Healing treatments by a Christian Science Practitioner – Getting treatment from a Christian Science Practitioner is also considered another deduction as a medical expense. The tax code is rather open when it comes to what is qualified as treatment. People in the Christian Scientist faith traditionally don't believe in conventional medical treatments, and do all their healing through the power of prayer. Whether it meets the standard of treatment in the medical community or not, the tax code's liberal interpretation of a medical expense could be your gain.

    • Attention All Dog Owners!!!! – I have heard the question, "Can I write off my pet?"; quite often before when asking tax clients about their write-offs. Although I understand that the cost of pets can be very expense; there are limited cases when write-offs for dog food and other pet expenses are allowable. One case is having a seeing-eye dog or other service animal. The dog is recognized as a "medical device". Therefore, all costs related to its maintenance, including food and training, are deductable. Another case is guard dogs for a business. Dog owners using their animals to guard a business can also deduct feeding and training costs.

    • Breast Implants – In a case where cosmetic surgery is performed to enhance beauty without a valid medical reason; the surgery can't be deducted from your taxes. However, there are special cases where a new pair of breasts is deductible. One way to deduct the cost is as a medical expense. The cost of breast surgery can be deducted by survivors of breast cancer who've had a mastectomy.

      Another way to deduct the cost of breast surgery is a business expense. There have been cases where certain professionals have undergone breast enhancements; and were able to use the cost of the breast implant as a business expense, i.e. exotic dancers.

    • Swimming Pool - When recommended by a doctor to rehabilitate neck and back injuries by maintaining activeness by swimming, the installation of a pool at your home residence is considered a medical expense deduction.

      Please obtain legitimate backing of a doctor before making such a big investment in your recovery. If the IRS fights the deduction and it leads to court, your doctor may be contacted to explain why the pool was necessary. Please be mindful that you will only be able to deduct the difference between the total cost of the pool installation minus the increase in the value of your home after adding the pool.

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