IRA deductions

For 2011 and 2012, the maximum you can contribute to all of your traditional and Roth IRAs is the smaller of:

• $5,000 ($6,000 if you’re age 50 or older), or your taxable compensation for the year.

The IRA contribution limit does not apply to:

• Rollover contributions
• Qualified reservist repayments

Claiming a tax deduction for your IRA contribution
Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work (this usually severly limits IRA contributions) and your income exceeds certain levels.

Roth IRA contribution limit
The same general contribution limit applies to both Roth and traditional IRAs. However, your Roth IRA contribution might be limited based on your filing status and income.

IRA contributions after age 70½
You can’t make regular contributions to a traditional IRA if you’re age 70½ or older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

Spousal IRAs
If you file a joint return, you and your spouse can each make IRA contributions even if only one of you has taxable compensation.
If neither spouse participated in a retirement plan at work, all of your contributions will be deductible.

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.
To avoid the excess contributions tax:

• withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
• withdraw any income earned on the excess contribution.

In 2013, Various Tax Benefits Increase Due to Inflation Adjustments

For tax year 2013, the Internal Revenue Service announced today annual inflation adjustments for the following tax items:

• The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
• The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
• The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012

State Sales Tax Deduction (7 states)

Most of the States in the U.S. use a state income tax as a means of taxing their citizens.  This income tax is deductible from federal taxes on schedule A of the form 1040.  Seven states use a sales tax instead of an income tax as a way of taxing citizens of their respective states.  Passed under the previous congress, these Seven states were finally allowed to deduct their state taxes also (just like the 43 states deduct their income tax).....That is now on the chopping block!!!!
Congress to save the day?
A bipartisan group of House lawmakers are urging the House Way and Means Committee to approve legislation that would extend the federal tax deduction for state and local taxes as part of any tax extenders package considered during the upcoming lame-duck session of Congress.  Without the deduction, taxpayers living in states without income taxes face higher federal taxes burdens, Rep. Kevin Brady, R-Tex., and Rep. Jim McDermott, D-Wash., said in the letter. “The sales tax deduction saves taxpayers in our states millions of dollars per year and is a vital component of our states’ economies, spurring growth and creating jobs,” the letter reads.