Top Seven Overlooked Tax Deductions
Taxes take a huge bite out of your income; but you can soften the effect if you know the rules. Don't let your hard-earned cash slip through your fingers. Itemize your deductions and take advantage of rules designed to reduce your obligation.
Good things come to those who itemize. Join the growing percentage of taxpayers who are maximizing their tax refunds, or at least minimizing their tax bills, by itemizing their deductions. Here are some of the most commonly overlooked deductions.
1. Medical and dental expenses
You're allowed to deduct medical and dental expenses that exceed 7.5 percent of your adjusted gross income. While this seems like a high threshold, it may not be that unrealistic. Fees paid to doctors, dentists, chiropractors, psychiatrists, plus the costs of dentures, prescription eyeglasses, and prescription medications for you and your dependants add up quickly. See IRS Publication 502, Medical and Dental Expenses, to find out which expenses qualify.
2. Charitable donations
You may not have been thinking about your tax return when you gave last season's wardrobe to the Goodwill, or when you donated money to the non-profit soccer club. That's okay, though-in some cases, you need only minimal documentation to substantiate your donations. Read up on the specifics in IRS Publication 526, Charitable Contributions.
3. Education costs
No one can say that the IRS doesn't provide tax help for those struggling to cover education costs. Saving for college, paying tuition, and paying student loan interest may all be deductible activities. Learn more in IRS Publication 970 (2006), Tax Benefits for Education, or discuss your education costs with a tax professional.
4. Investment expenses
Many expenses directly associated with income-producing investments can be deducted. Examples include fees paid for investment advice, and the cost of safe deposit boxes used to store stocks and investment-related paperwork. IRS Publication 550 (2006), Section 3, covers this topic in detail.
5. Job search expenses
Job search expenses include employment agency fees, resume printing and mailing costs, travel expenses, and long distance phone charges. If you incurred these costs while searching for a new position in the same line of work, they may be deductible as non-reimbursed employee expenses. See IRS Publication 529 (2006), Miscellaneous Deductions, for further information.
6. Gambling losses
Gambling losses are deductible up to the full amount of your gambling winnings. In other words, if you win money gambling, be sure to keep track of how much you lose, as well. This topic is also covered in IRS Publication 529.
7. Tax return preparation costs
You can deduct the accountant's fees or the cost of the software used to prepare your returns. These costs are treated as a miscellaneous itemized deduction, covered in IRS Publication 529, and are deductible in the year that you pay them.
Thousands of taxpayers leave money on the table every year by not taking all deductions available to them. Hopefully, you won't be one of them.