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Tax Tips: 'Making Work Pay' and How to Avoid Making Mistakes

You don't want April 15 to come and go without claiming the second and last "Making Work Pay" tax credit. "Making Work Pay," a bit of economic stimulus offered to the little guy, provides $400 for individuals earning $75,000 or less, with both figures doubled for married couples filing jointly.

There was some hope that "Making Work Pay" would be extended, but the tax deal reached in late 2010 between President Obama and Congress calls instead for a reduction of two percentage points in 2011 for the employee's portion of Social Security tax. That break is being felt with each pay check, as employers are - or should be - withholding the tax at the lower rate.

Similarly, employers probably adjusted withholding on income taxes in 2010 to reflect the "Making Work Pay" credit. Just don't forget to file the right paperwork, or else you won't be able to keep it. You must fill in Schedule M of Form 1040 or 1040A and also list the correct amount of the credit on 1040 Line 38 or 1040A Line 22.

It may seem like a chore, but it's not a complicated form, and with "Making Work Pay" expiring and the Social Security tax deduction good for 2011 alone, you may feel a twinge of nostalgia in 2012 when you think back to Schedule M and the good old days.

Here are some more tax tips from Bob Scharin, a senior tax analyst at Thomson Reuters. They start off with a warning from Scharin, who apparently is anything but a glass-half-full kind of guy: "With so many tax changes every year, each filing season presents new ways to make mistakes."

One screw-up waiting to happen concerns a 2008-vintage stimulus measure, a presumed credit of up to $7,500 to buy a first home. Scharin notes that this was not a true credit but "really nothing more than an interest-free loan that generally must be paid back over 15 years, beginning with the 2010 return." The installment due this year is $500 for taxpayers who claimed the maximum credit in 2008.

Another credit, for buying insulation or energy-efficient fixtures for a primary home in 2009 or 2010, is good for 30 percent of the amount spent, Scharin says, up to $1,500. But that figure applies to both years combined, so if you took the credit for 2009, you can't take it again.

Yet another credit is up to $2,500 a year for higher education for up to four years. Although Scharin doesn't put it quite this way, anyone on the John Belushi plan - seven years of college down the drain - is out of luck for the last three years.

One more thing: If the mortgage lender on your main home let you slide for part of the balance, the savings is probably yours free and clear, he points out, but the amount of any other debt that was forgiven is probably taxable.

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