Get organized now to lower your 2008 tax bill by reviewing some commonly overlooked tax deductions.
After you filed your taxes, did someone tell you about this or that deduction that you would have been eligible for but forgot to include? Here's a late 2008 resolution: don't let it happen again! Know the deductions available to you, and apply before it's too late.
Conservation credit for hybrids
The break that you get for buying a hybrid vehicle can be substantial, but the rules are a little confusing. First off, know that a tax credit reduces your tax bill dollar for dollar. This is more impactful than a tax deduction, which lowers your taxable income. The IRS allows a conservation credit of up to $2,400 in the year you start driving the car. But the exact amount depends on the model of the vehicle and its fuel economy. Also, the credits begin to phase out when the manufacturer sells more than 60,000 hybrids. Consult with a tax professional or the auto dealer to clarify the credit that's available to you.
Donations, even the noncash ones
Stay organized about your charitable contributions this year. If you give a $20 bill to someone who shows up at your door, ask for a receipt. If you use your credit card to make a donation, ask for a receipt. If you clean out your attic and take your old stuff to Goodwill...well, you get the point. Whether you donate with cash, credit, or goods, you need the receipt in case you get audited. Keep your receipts in one designated folder that you can access quickly when tax time rolls around. Remember that you can only deduct the market value of donated goods, which is not the same as the original price. Thrift store prices provide a good gauge of market values on used items.
If your investment expenses add up to 2 percent or more of your adjusted gross income, you can deduct them. Investment fees include safety deposit box fees (if the box holds securities that generate taxable income), broker fees, the cost of long distance calls made to your broker, mileage incurred to meet with your broker, and the cost of subscriptions to investment-oriented periodicals and Internet communities. Legal expenses might also be deductible under this category. The rule of thumb is this: If the incurred legal expenses relate to taxable income or income-producing property, they are deductible.
The deduction on points paid when you refinance has to be amortized evenly during the life of the loan. But if you refinance again, any remaining unamortized points can be deducted all at once in the year of the second refinance.
Tax planning is a year-round process. Now is the time to get organized, so that you can be on the other side of the tax conversation next year.