Social spending means the money earmarked for the various welfare schemes by the government to eradicate illiteracy, unemployment and other social evils. Spending was increased for the benefit of education, rural employment, food programs, and agriculture. The poor and rural masses form the large percentage of the country’s population, and are also the core support group for the Congress Party in India.

Social Spending will constitute close to thirty six per cent of the total budget. Pranab Mukherjee also promised to set up a number of measures that will assist in reducing food inflation. Food inflation is causing enormous discontent in India since the last few months. The 11.5 per cent rate of food inflation means hardship for the already impoverished masses.

The long awaited food security bill is another welcome measure. The bill guarantees food for low income families at subsidized rates. This measure, if it is carried out, will be of enormous help to the rural poor.

Mr. Mukherjee also stated that while inflation remains a gnawing concern, he expects the policies implemented by the Reserve Bank of India (RBI) to be of considerable help in moderating inflation. He also expects inflation to be lower on average in the coming year.

The money devoted for social spending will come from the rising tax revenues. India’s fast powered economy will provide an almost twenty five per cent of increased tax revenues. In addition, new taxes have been introduced in air travel and hotel accommodation.

Rapid economic growth is expected in the next fiscal year; “double digit growth” in Mukherjee’s words. The economy expanded by 8.6 per cent in the year gone by, while a nine per cent expansion is forecasted for next year.

A number of state firms are being privatized in part, which is expected swell the assets of the government by Rs. 400 billion. This will mean that the public deficit of 5.1 per cent of the Gross Domestic Product will be reduced by 4.6 per cent in the coming year.

In addition there have been measures to ease the red tape, streamline customs tariffs and taxation.

The military spending has been hiked yet again this year, an 11.6 per cent rise to the total of Rs 1.65 trillion.

The minister also announced steps designed to attract increased investment from foreign sources for infrastructural development. The limit that was set for foreign investment in corporate infrastructure bonds has been increased five fold. India has many power plants, roads, ports and other infrastructure in dire need of development.

On the back of the budget, Shares in India saw a notable jump of 2.23 per cent, which amounts to 412.04 points. The reduction of the fiscal deficit was seen as a step in the right direction.

So what does all of this mean for you, for the tax brackets, for the marginal tax rates and for the year 2011? What it means is that these rules will remain as is for the next years as is and there will only be some minor changes made to the rates levied and standard deductions that can be claimed. And most of those changes are on account of inflation. What you need to be aware of are the changes in the tax brackets and so here they are without further ado.

• Each personal exemption or exemptions on account of dependents can now be made up to $3,700. That’s up by $50 from the 2010 limits.
• The standard deduction for married couples has increased too. It is now $11,600, up by $200.
• As for singles, that amount is $5,800. The increase for singles weighs in at $100.
• Any additional standard deduction (such as those made for blind people or senior citizens) can be put at $1,150 for individuals that are married and $1,450 for singles. Both are up by $50 from last year, factoring in inflation.
• Thresholds too have increased for each status that you are filing for. That is too say the taxable income threshold separating one class of taxation from the other has increased, widening brackets.

All of this compares quite favorably to 2009 and 2010, to be honest, but make sure your paperwork is all in order. You don’t want to be caught short at the last minute.

Charity costs

We can deduct donations made for cash or goods, and most of us know about this. But how many of us know that we can also put down our out of pocket expenses by way of income tax deductions? This includes transportation and everything else you can think of. All that is needed is that you back up these expense claims with the correct documentation and don’t try and pull the wool over the IRS’ eyes.

Job hunting

If you are looking for a job, you can put down any expenses you come across as part of your income tax deductions. This includes any money you might have spent to mail out resumes (including paper, ink and stamps). Even internet and travel expenses can be included in this list. This is only applicable if this isn’t your first job.

Refinancing points

If you purchase a new home or you purchase points to refinance a mortgage, you can use this purchase as one of your income tax deductions as well. And if you purchased a home, you can deduct the cost of home straight away. If it is a refinancing, the income tax deductions come over time as the loan gets paid out.

Home improvement loan

Many people fail to look at the interest paid on their home improvement loans as one of their income tax deductions, but the truth is it can be. Just so long as you aim to use that money for a major renovation, you can use the interest paid on that loan as one of your income tax deductions.

Tax preparation

This one is perhaps the most ironic of all, but it’s funny since it’s true. If you paid good money to have your taxes readied, or if you purchased software to compile your taxes, those fees are deductible. The same applies with electronic filing of your taxes.

Student loan interest charges borne by parent

If you are a parent helping your child with paying back their student loan interest charges, you can make a file for this as being a part of your income tax deductions as long as the amount filed for is up to $2,500.

Medical transportation charges

Visiting the doctor for medical visits can be charged as one of your income tax deductions. If you use your own car, you can file deduction for mileage and that is before mentioning parking charges and tolls. Bus and tax fare is deductible too.

Mortgage escrow accounts are not the same as a real estate escrow since a homeowner and a mortgage lender are the parties in question. As part of his end of the bargain, a homeowner must pay property tax and insurance on time. Failing to do so affects the mortgage lender since such actions can destroy the value of the collateral that the homeowner has placed the lender. In order to have a better valuation of the collateral in the case of a default, the mortgage lender will look to get guarantees about full and timely payment for property taxes and home insurance, which is where mortgage escrow accounts come into play.

The mechanisms of mortgage escrow accounts are very simple. In order to pay property taxes and home insurance, it is the homeowners responsibility to deposit the funds with the escrow account as part of the mortgage deal. When the payments become due, the escrow releases the funds and pays it off in time, thus leaving the value of the home intact. The benefits of this to the homeowner and to the mortgage lender is quite clear. The mortgage lender gets a sense of security and assurance about the value of the collateral while for the homeowner, this is a way to automate the payments he has to make for one part of the mortgage by paying smaller sums of money instead of a lump sum payment. It’s a win win situation for all. The lender knows that there will be no shortage of funds that hurts him and the homeowner doesn’t have to remember any due dates for payments. The one thing that homeowners must keep in mind with mortgage escrow accounts however are how it will affect their monthly budget. That is the one critical aspect many homeowners overlook almost totally.

Unemployment is touching close to 10% as of now across the length and breadth of America and that number soars even higher if you start to factor in those that are either working part-time as a stop-gap measure since they can’t get a full-time job and those that are under-employed (i.e., working a job for which they are over-qualified and most likely underpaid). The US tax code as it currently stands is encouraging the creation of jobs overseas and with the midterm elections looming around the corner, this is seen by many as a populist measure by President Obama aimed squarely at wooing voters. Billions of dollars have been given away by way of tax breaks and the aim now is to try to create more job jobs within the United States and to encourage companies to invest more on American soil in an effort to alleviate the issues that ail the American economy.

In his weekly address, the President said that a large number of businesses that do take their business abroad make a contribution to the American economy and while that is all well and fine, there seems to be “no reason why our tax code should actively reward them for creating jobs overseas.” In the wake of an economic recovery that has been barely that and in the face of economic growth that has been lethargic (to go with the pre-existing problems of unemployment and immense government debt). As things stand, analysts opine that the public’s support is with the Republicans, a sentiment that should help them gain a larger foothold within Congress if not full-blown control in itself.

That is something that should worry the Democrats, but this is not a time for petty politicking. Some of the policies that have been pursued over the years have not benefited America at large; its workers, its businesses and its economy has suffered in the bargain and hopefully this amendment to the tax code will go through, offering some relief to a stricken America.

But all of this prolonged economic warring by the Federal Reserve means that it is hardly left with the means to fight off a second wave of attack from the minions of that great warlord, the Economic Slump. It seems as if the Federal Reserve is swamped from all sides and its biggest concern seems to be the federal deficit that has soared to unimaginable levels. As national debt goes, it dwarfs Everest and K2, practically a mountain of debt no one can scale (with or without Tenzing Norgay). That one factor alone means stimulus spending of any kind will be highly unlikely, ruling any mini recovery out of the question. The need of the hour is a fiscal stimulus that can boost labor demand and consumption, and the recent proposal of the Obama administration to make a permanent fixture of a Research & Development tax credit that is more than 2 decades old.

That, in addition to a temporary investment tax credit is a welcome move but it is like offering a candy cane to a kid that is crying out for that giant stuffed teddy bear; it’s not enough to silence the crying child and it doesn’t do nearly enough to gloss over the basic issues at hand. Something drastic is needed, something like the administration cutting back payroll taxes for say two years. This will have several concurrent effects. It would mean that labor costs will drop, allowing even ailing industries to hire more people while for employees this would mean a fatter pay packet and a larger disposable income, which would boost consumption trends for sure. In addition, it would also help to de-leverage houses and pare down debt accumulated for several years on end.

Strangely, all policy shifts and announcements thus far, have been aimed at subsidizing the demand for capital. While supporting industry in itself is an excellent idea, there is also a need to make the economic effect of subsidies two-fold and move to subsidize the demand for capital and labor. An increased demand for labor does not necessarily add up to a demand for labor. Subsiding capital means industries apply resources to investing in offshore offices and equipment that will still reduce labor costs without hiring any additional labor. The key issue is unemployment, which has hit alarming levels, and the solution lies in creating jobs and spurring demand for goods.

And the best part is that this reduction in payroll taxes could be fully funded by simply abolishing the Bush era tax cuts for people earning more than $250,000 a year. Bush’s tax cuts hit the middle and lower income hardest, and that situation needs to be redressed. Any Bush administration tax cuts affecting those two strata’s of society can be as is, further incentive to this possibility of payroll tax cuts (fully funded, mind you). Give it two years, and once output, hiring and performance of the private sector has again rallied, this payroll tax cut can be slowly rolled out while keeping taxes for the rich in place to help reduce the budget deficit, while also boosting taxes on the middle class in the long run.

This tax break will serve to help small and medium enterprises hit by banks squeezing liquidity availability and also help low income workers, who will spend more freely in the wake of such a move being instituted. All that’s needed is the willingness of Congress to okay a partial expiry of the 2001 and 2003 tax cuts. Mind you, these are not deficit reduction measures mentioned here, but they will help significantly when it comes to holding the line against the rush of government debt. It is a cash injection into American households and therefore a cash injection into the American economy. And all of this can be done without busting the budget.

The contributor must keep investing in this plan until the age of retirement (59 ½ years) to receive tax benefits. If he withdraws money after retirement age, taxes applicable on such withdrawals are comparatively low. The funds toward which the contributor has to pay is usually chosen by the employer.

Quite similar to other retirement plans, transfer to other plans or early withdrawals attract penalties. The ‘holding period’ generally ranges from 7 to 10 years. And if you want to avoid withdrawal or surrender charges, make sure you don’t withdraw money before this period. Once you have exceeded this period, you can transfer or withdraw funds without any charges. However, remember that transferring such funds is a lengthy and complicated process, as it involves lots of paperwork.

Besides, before you plan to transfer funds from tax sheltered annuity plan, make sure you read rules set by IRS. They have, in 2009, restricted the plans to which you can transfer these funds. Also, most employers have their own restrictions on such transfers.

Unlike olden days, employees now have better transparency regarding such plans offered by employers. Many employers also offer various options to choose from. You can also transfer this funds from one tax sheltered annuity plan to another, when you change your employer, provided the latter (new employer) accepts such transfer.

If you are an eligible employee, you can enroll in this plan at any time. Besides, you can contribute any amount, regardless of how much you employer agrees to pay.

1.    Loss on Investment Deductions

If you incurred any losses from your investment products like mutual funds, bonds, stocks, etc. you ca deduct that amount from your taxable income. You must contact your broker and ask for an electronic statement, which might be useful to prove your loss.

2.    Charity Donations

If you made any donations to a recognized charitable organization, it’s deductibles. You don’t necessarily have to give cash, you can give away furniture, clothes, and any other item in good condition as charity, and they are all deductible. This is really important in list of tax deductions.

3.    Property Deductions

Taxes you pay on your property are also deductible. You will, however, need a tax bill. People on mortgage must ask for a 1098 from the loan provider. If you are amongst the ones applied for first time home buyer tax credit, you will nave to attach IRS Form 5405.

4.    Interest on Students Loan can be deducted

5.    Family Expenses

If you have a family, you enjoy certain tax benefits. Expenses for adoption, dependent care, earned income credits, child tax credits, are all tax benefits you can claim.

6.    Vehicle Expenses

If you have a eco-friendly or hybrid vehicle which are qualified by IRS, you have to pay lesser income tax.

7.    Dental and Medical Expenditures

If your dental and medical expenses exceed 7.5 of your Adjusted Gross Income (AGI), you can deduct the amount from your total income tax payable. All costs pertaining to medical like insurance premiums, medicines bought, prescription bills, medical bills, visiting charges, equipments bought for treatment, traveling expenses, etc. are deductible.

8.    Retirement Investment

Investing in retirement accounts like traditional IRA are deductible. Some people also enjoy retirement savings contribution credit.

9.    Employment Expenditure

If you are spending money from your pocket to meet the work related expenses like travel, clothes, gas mileage, bills, accommodation, and so on, it is deductible. If you are self employed, you enjoy many other benefits especially if you are working from home.

You can benefit from most or all of them, only if you are aware about them and know how to use it. So, read more about these list of tax deductions, ask your consultant, and make a smart decision before filing your taxes.

You can, as a tax payer, include expenses that are paid for your family or any other dependents, for deductions. The common ones are:

• Payments made on premiums for long term care insurance, dental, and all other medical insurances.
• Deductibles on insurance including co-payments
• Any visiting charges paid to dentists, psychiatrists, doctors, health practitioners, and chiropractors
• Payments made to long term care facilities, hospitals, lab fees, nursing homes, and so on.
• Expenses paid to cover cost of medicines, insulin, and other drugs.
• Expenses paid to purchase hearing aids, eyeglasses, contacts or false teeth.

These were, however, some of the very common medical expenses tax deductions. Apart from these, there are few others that aren’t known to all tax payers.

• Any expenses paid to have acupuncture healing
• Any expenses paid to cure drug or alcohol treatment, or any related visiting charges
• Any expenses to enroll in smoke-cessation plans
• Any expenses to participate in programs such as weight loss, or to diagnose obesity and hypertension
• Expenses paid for treatments like laser eye surgery, of for crutches, guides for old and blinds, or for wheelchairs
• Traveling costs related any of the above treatments or services

I guess pretty much every medical expense is deductible. Are there any things that are not deductible? Yes, there are few expenses that cannot be considered as deductible.

• Diet food, and health club fees
• Funeral related expenses
• Expenses paid for cosmetic surgeries
• Expenses paid to purchase nicotine gums and patches, which are available without any prescription

Now that you know which medical expenses are deductible, how do you claim them?

To claim medical expenses tax deductions that aren’t reimbursed by any insurance companies or any other organizations, you will first have to calculate the total deductible amount, and accumulate all the receipts and bills, which will be required as proof. Now these costs should be mentioned in Form 1040, Schedule A, and it should exceed 7.5% of one’s AGI (Adjusted Gross Income). That’s it.

Office Space

As a freelancer, if you are using your home space for business, you are entitled to waive off your office space. The amount, otherwise, paid as rent or mortgage can be deducted from your taxable income. Thus, working a s a freelancer can earn you more than a regular employee. Also, a part of your renters or homeowners insurance is can also be deducted as non-taxable income.

Bills

Working from home means using personal telephone lines, internet, and other utilities. These expenses, however, can be deducted up to the amount used for commercial purposes. If you have a dedicated phone line or fax for your business, it can be completely written off.

Technology

Every business, these days, is run with the help of technology. If you purchase any technological equipments to start or enhance your business, it can be written off completely. These technology purchases include computer up-gradation, routers, printers, fax machines, pen drives, web cams, new computer, etc. Also, any software bought for your business is deductible.

Stationary

Expenses made on purchase of office supplies like pen, paper, files, chairs, desks, or, any other supplies that help you to conduct your business can be written off. Postage costs, envelopes and other external stationary costs related to your business can also be deducted.

Business Overheads

This category includes all other costs like incorporation fees, business cards, letter heads, etc.

Educational Fees

Any cost incurred to enhance your commercial skills can also be deducted. You can include training fees, seminar costs, subscription costs, varied courses, and any other fees that will help you make a better entrepreneur, under this category.

Online Fees

If you are a freelancer, it’s very likely you might have a website. The costs incurred to register the domain, website designing charges, and other maintenance costs are also deductible.

Travel Expenses

Along with traveling charges, you are also eligible to deduct numerous other expenses like parking fees, bus and train tickets, hotel room cost, food, office space rent, and also your laundry costs. Not all expenses, however, would be 100% deductible. Hence, it’s wise to consult a tax professional before filing these expenses.

Miscellaneous Costs

You can include every other type of cost in this category. You can write off your health insurance premium cost if you have paid it through your business; credit card bill if paid as business expenses; unpaid client bills, etc. It also includes tax consultation fees and tax software costs. Lastly, you are eligible to write off client related expenses like gifts or luncheons given.

Hence, it becomes quite important for a home based business owner to keep track of all the expenses made throughout the year. Also, consult a tax professional before filing your tax this year, to avoid any glitches.