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Tune up your income tax awareness

April 15, arguably the most dreaded day of the year, is fast approaching, and with the new tax increases in Congress there are some things to be aware of.

• First, the new increases in income and payroll (Social Security and Medicare) taxes will not affect your 2012 tax return.

• Second, there are several credits and deductions you should note to make sure you get the most from your return.

Rather than being stressed out, pretend paying taxes is a game and the following tips will help you win, get a higher refund and generally be more relaxed when that dreaded date rolls around.

Tips to win

• If you turned 65 on or before Jan. 1, you're eligible to take a higher than normal standard deduction: single $7,250; married $13,900 (if both over 65 — $14,200); head of household $9,950; qualifying widow/widower $12,750.

• If your adjusted gross income (exempt interest and half your Social Security benefit) is less than $25,000 ($32,000 if married and filing jointly or qualifying widow), you'll pay no taxes on your Social Security income. Generally, if income is above these amounts up to 50 percent is taxable. For high-income retirees ($32,000 for single and $44,000 for joint), up to 85 percent is taxable.

• If you're in a tax bracket of 15 percent or lower, you'll pay no federal taxes on long-term capital gains.

• If you work while paying a home health aide to take care of your spouse or dependent, you may be able to claim a credit of up to $3,000 in spouse or dependent care expenses.

• If you pay all or some of your parents' medical bills, you can deduct those as health care expenses provided you itemize deductions on your return if your parents are qualified dependents.

• If you contributed after-tax income to your retirement account such as a 401(k) or an IRA, a percentage of your annual distribution may be tax-free.

• If your stay at an assisted living facility or nursing home is related to medical care, you may be able to deduct the cost.

• If you bought hearing aids and batteries, artificial teeth and prescription drugs, you may be able to deduct some of the medical expenses.

• If you made certain energy-efficient improvements to your home, you may get a tax credit for expenses such as installing a new roof or new windows or exterior doors.

Some of these tips come with restrictions that may apply to you, so consult with a tax adviser or visit aarp.org/money/taxes for more information.

Tune up your income tax awareness 03/26/13 [Last modified: Sunday, March 24, 2013 10:55am]
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