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If you’ve given up itemizing deductions, you’re not alone. These days over half of all taxpayers find they’re better off using the standard deduction. But even if you take the standard deduction, you can also deduct some individual expenses on your 2011 tax return, including the following:

* IRA and HSA contributions

On your 2011 tax return you may qualify to deduct up to $5,000 in contributions to a traditional IRA. That increases to $6,000 if you’re age 50 or older. Income limitations may apply in some cases. You can’t deduct contributions to Roth IRAs.

Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow tax-free, and you’re allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. The HSA contribution limit for 2011 is $3,050 for singles and $6,150 for couples. An additional $1,000 may be contributed by those 55 and older.  Watch out, if you made these contributions through payroll deduction then they are already tax free so you do not get an additional deduction on your tax return.  Also, remember if you have an HSA you must complete Form 8889 with your Form 1040.

* Student loan interest and tuition fees

Deduct up to $2,500 interest on student loans for yourself, your spouse, and your dependents. For 2011, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.

* Self-employment deductions

If you’re self employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.

* Other deductions

Don’t overlook deductions for alimony you pay, certain moving expenses, and early savings withdrawal penalties. Teachers can deduct up to $250 for classroom supplies that they purchased with their own money in 2011.

Contact our office for more information on these and other deductions you may be entitled to take on your 2011 tax return.

A lifetime gifting program might trim both your estate and income taxes. First, there’s the annual exclusion for gifts. Currently, you can give $13,000 annually to any number of recipients without paying federal gift tax. Married couples can double this amount by gift-splitting; a gift of $26,000 from one spouse is treated as if it came half from each. So if your child is married; you and your spouse could gift $52,000 and it would be considered to fall under the annual exclusion if the gift is made to both your child and their spouse.

Gifts do more than help out children who need the money. They also reduce your estate so your estate will pay less estate tax upon your death. Apart from annual gift giving, you can currently transfer (during your lifetime or through your estate) a total of $5,000,000 with no estate or gift tax liability. On amounts above this threshold, you or your estate will be faced with taxes at the current top rate of $35%. So a consistent program of annual gift giving might create substantial tax savings.

Note that gifts to individuals do not entitle you to an income tax deduction. A gift isn’t a charitable contribution. Conversely, a gift doesn’t constitute taxable income to the recipient. Gifts of income-producing property may, however, reduce your taxable income. Once you’ve given the property away, the recipient, not you, receives the income it produces and pays any income tax due on it.

One advantage to annual gift giving is that it is relatively simple to do, especially if you’re giving away cash. Another advantage is flexibility. You’re not locked into anything; you can see how much you can afford to give away each year. You can give away anything – cash, stock, art, real estate. Valuation is the fair market value on the date of the gift. Subsequent appreciation, if any, belongs to the donee’s estate, not yours.

Before you give away assets, be sure you will not need them yourself to provide income in later years. Consider the impact inflation will have on your resources.

Proper planning is essential in this area; get professional assistance before you do any gift giving. Contact our office if we can help.

Are you familiar with income phase-out levels for those tax credits and deductions you hope to take advantage of on your 2011 tax return? While it doesn’t make sense to make less income just to qualify for a tax break, shifting income from one year to another may sometimes be a smart move.

Learn about the tax credits and deductions for which you might qualify. Then estimate your income for this year, and if it will be just beyond qualification range, look for opportunities to defer income until a later year. Investment income can often be shifted, or you might delay the exercise of stock options or the receipt of a bonus.

For additional guidance, give us a call.

With an earthquake, hurricane and tornados in the space of a week there have been several reminders that disasters can occur at any time – often with staggering human and financial costs.

For the unlucky victims of a disaster, you may receive help from insurance and federal disaster aid. But the tax code also offers some relief. You may be able to take an itemized deduction for part of your loss. In tax terms, it’s a “casualty loss” and it can also apply to events such as a car crash, a house fire, or theft. Here are the basics.

The loss or damage must be due to an unexpected and sudden event. Losses due to slow deterioration over the years, such as rot, rust, or insect damage, don’t qualify.

•  Your tax deduction won’t equal your total loss. You must subtract any insurance or other reimbursement. Then you must also deduct $100 for each loss and 10% of your adjusted gross income.

•  Your loss may also be limited by your adjusted basis in the property. That’s generally what you paid for it, plus or minus any improvements or previous losses.

•  In a widespread disaster, the area may be classified a “Presidentially declared disaster area.” If that happens, you have a special option. You can claim your casualty loss against the current year’s taxes. Or you can amend the previous year’s return and claim your loss against that year’s taxes. That usually generates a faster refund, but it may change the amount of your deduction.

If you suffer a casualty loss, please contact us. We’ll explain the rules and help you claim the maximum possible tax benefit.

**  NOTE ** If you are still struggling with hurricane related issues, the Delaware State Chamber of Commerce, in conjunction with the Delaware Economic Development Office offer Post-Irene Assistance.  Please see their statement here.