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Common federal tax deductions you can't miss

A big Tightwad welcome to Matt Robinson, a part-time financial blogger and accountant with a focus on taxes. Matt writes for US-based TaxDebtHelp.com's tax blog, a blog that provides guidance, tips, and news for taxpayers with major tax debt problems. As you get ready to prepare your income tax return, here is a list of a few of the most common deductions that you will not want to miss.
Interest on your mortgage If you have a mortgage on your home, one of your top deductions for the year will most likely be the total amount of interest that you paid on your home mortgage. This is claimed on form 1040, Schedule A because it is an itemized deduction. Homeowners are able to write off interest paid on their first and second homes, as well as any interest paid on a home equity loan or a home owner line of credit (with some limitations). The loan must be in your name, and you cannot take a deduction on a loan that you are paying for someone else. Form 1098 should provide the interest you paid during the year. There are limitations, so be sure to check with your accountant or IRS publication 936. Lastly, remember that everyone is entitled to a standard deduction ($5,700 for individuals/married couples filing separately; $11,400 for married couples filing jointly), so if your itemized deductions are less than your standard deduction, do not itemize.
Donating to charity This is also an itemized deduction. If during the year you made any donations to nonprofit organizations in monetary form or in goods (market value of goods at the time would come into play), you are usually able to take a deduction on your tax return (again, if your itemized deductions are more than the standard deduction). In order for your donation to qualify, it must have been given to a qualified charitable organization. Additionally, you need to be sure to keep accurate records to support any deductions you make in this area. While cash donations are easy to validate, goods donations are more difficult because you must estimate their fair market value. Never try to claim more than the fair market value of an item and be sure to get proper documentation (receipt or check copy) from the charity to whom you donate. When in doubt, check with a tax preparer professional for advice on charitable deductions and/or see IRS Publication 526.
Medical + dental expenses Many taxpayers do not realize that they may be able to deduct some of the money they spent on medical expenses throughout the year. This includes expenses for doctor and dentist visits, bandages, eye-glasses, medications, medical supplies, disease prevention and more. You can also deduct health-insurance premiums, so long as your employer is not already paying for it with pre-tax dollars. In general, if you are planning to deduct medical expenses, note that you can only claim those medical expenses that exceed 7.5% of your adjusted gross income. To figure this amount, take your AGI (adjusted gross income) and multiply it by .075. Then, subtract this number from your total medical expenses to figure out your medical expense deduction. For more information see Publication 502.
Taxes paid for real estate If you do not itemize this deduction, you cannot claim this item. If you own property such as real estate, you can deduct state and local property taxes paid. In order to deduct them, they must have been levied uniformly in your jurisdiction for the general public welfare and be based on the assessed value of your home. If you paid these property taxes in 2010, you can deduct them on your 2010 tax return so long as they do not include property improvements or assessments for things like sidewalks, sewer lines, streets lights and so forth. There are some limitations and details not discussed, so please see Publication 17, pg. 146.
State and local income taxes If you live in one of the many states and/or cities that have an income tax, then you can deduct those taxes on your Federal tax return in most cases. This includes taxes withheld, estimated state tax payments made and so forth. However, just like any other deduction, there are limitations. For example, you are not allowed to deduct state and local income taxes you pay on income that is exempt from Federal taxes (unless that income is interest income). Most income tax software includes specific instructions for lengthy and noteworthy deductions. Be sure to see IRS publication 17 for more details, or check in with your tax adviser if you have more in-depth questions about longer itemizations.
Other common miscellaneous tax deductions There are miscellaneous expenses that you might have incurred in 2010 that may be partially deductible on your tax return. The total amount of miscellaneous expenses (some listed below) that exceed 2% of your adjusted gross income (line 38 of Form 1040) can be deducted. For example, say that you incurred $5,000 qualified miscellaneous expenses in 2010 with an adjusted gross income (AGI) of $60,000. Therefore, 2% of AGI would be $1200. Consequently, you would be able to deduct $5,000 - $1,200, or $3,800 on your tax return. Below are a few of these miscellaneous expenses:
Fees for tax preparation, safety deposit box rental, legal tax related, union dues, professional society dues, licenses/regulatory fees, IRA maintenance fees from your financial institution,work related education costs, business liability insurance premiums, job search expenses and educator expenses.
The list above is not all inclusive of the possible miscellaneous tax deductions that you may be able to deduct on your 2010 tax return. For a full detailed list of these and their limitations see IRS publication 529. In conclusion, always check and re-check when filing your tax return to be sure that you have not missed any deductions to what you are entitled. While the ones listed here are some of the more common deductions, there are others for which you just may qualify. Always check in with a CPA, Enrolled Agent, licensed tax preparer or tax attorney when in doubt.

1 comments:

Anonymous said...

It's great that you took the time to write this, as it's an issue that is very really important to me.

Is there any way I can get in touch with you? My name's Jorge Rea and I'd get into this more deeply.


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