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Tax Benefits Available to Higher Earners
Posted By timparker On 03/15/2012 @ 2:08 pm In Taxes | 3 Comments
If you make more than the average putting you in the category of a high earner, you know that there are a lot of tax breaks that are phased out as a person’s income rises (prime example – Roth IRA phaseouts  begin at $105,000 for single filers and $169,000 for joint filers). This issue of phase outs might make you and your family ineligible for the benefits enjoyed by many middle class Americans.
If you continually find yourself ineligible for many of the tax breaks, take heart because there are still many credits, deductions, and refunds available to you if you look for them. Here are just a few of those.
If you’ve made your money by start or running your own business you know that the 401(k) that other workers contribute to isn’t available for you. Your version of the 401(k) is the SEP or simplified employee pension . You’re allowed to contribute and deduct up to $49,000 in 2011 and $50,000 in 2012. Haven’t contributed yet? You can still include it on last year’s taxes even though the calendar year 2011 is long gone.
If you had two jobs in 2011 and earned more than $106,800, you probably had too much social security taken from your paychecks. You would have owed $4,486 if you made $106,800 so anything above that entitles you to a refund. This will be automatically calculated when you enter your W2 information.
The slots and the horses didn’t pay off this year for you? Gambling losses can be written off as a deduction on Schedule A assuming you itemize your deductions. As with any deduction, the IRS isn’t going to take your word for it if they ask for proof so before you claim it, make sure you have proof that you made the bets and loss the money.
If you’re an investor who used a margin account and pay interest on the money, you can write off the interest you paid. The rules regarding margin interest are a little more complicated than most so reading this IRS publication  before claiming the deduction is well advised. (Using borrowed money to invest is generally a bad idea but that’s for another article)
If you’re divorced, you may be required to pay alimony payments to your ex-spouse for a specified period of time. Luckily, alimony payments, in most cases, are deductible on line 318 of your 1040 form. Payments stemming from a divorce or other legal matter may be subject to other rules and because of that, it’s best to get the help of a tax professional.
If you and your spouse both work full time or one of you is a full time student, the costs you incur for daycare may result in a healthy tax credit. Technically, everybody is subject to a phase out of this credit but most people will qualify to some degree.
The rules regarding this credit care complicated so viewing IRS publication 2441  will help you determine how much credit you’ll receive.
Even if you earn more than $100,000, there are deductions, refunds, and credits available to you. As with any tax question, making an educated guess can cost you in penalties and interest. Always consult a professional when the answers are unclear.
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 Roth IRA phaseouts: http://www.bargaineering.com/articles/roth-and-traditional-ira-contribution-limits.html
 simplified employee pension: http://www.dol.gov/ebsa/Publications/SEPPlans.html
 IRS publication: http://www.irs.gov/pub/irs-pdf/f4952.pdf
 IRS publication 2441: http://www.irs.gov/pub/irs-pdf/f2441.pdf
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