Frequently Overlooked Income Tax
Deductions
Income tax deductions can make a huge difference in
your income tax obligations. However, many deductions can easily be missed if
you don't plan ahead and look out for your own tax interests long before tax
season. Too often, people turn to the standard deduction when in fact, they
have many expenses that are valid deductions that should be itemized and can
save them hundreds or more in tax dollars.
In order to take the vast majority of income tax
deductions, it is necessary to itemize your tax return. Calculated into the
standard deduction for both single and married people as well as any dependants
is a sum of money that is not taxed. This so called "standard" deduction is the
average amount most people spend toward things that could be considered
deductions. When expenses that fall into areas of deductions exceed the
average, then it is wise to itemize and gain the tax break.
It should be noted that in many cases, deductions
are only for the amount that exceed two percent of income. To be certain that
you know exactly what valid deductions in your particular situation are, it is
wise to consult a tax professional or use the best tax preparation software
available.
State and local property tax, state sales tax and
state income tax are valid deductions. Few people, however, pay enough in these
categories to justify itemizing deductions, yet, combined with the other
deductions; they may find it beneficial to use the longer form and process of
itemization.
Mortgage and investment interest are also deductible
expenses. Charitable contributions, provided you have proper proof for the
contribution, are also deductions. Casualty and theft losses that exceed ten
percent of the gross income count as deduction and may help in the case of a
significant loss such as uninsured property that is destroyed in a storm or a
business being impacted by a major theft.
Medical expenses that exceed seven and one-half
percent of gross income are valid deductions. If you have a home business,
there are strategies you can employ to deduct 100% of your medical expenses
with out regard to the seven and one-half percent limitation. In situations
where catastrophic medical needs impact a family, this deduction can make a
very big difference, provided the expenses were not reimbursed by insurance of
any kind. Of course, any expenses that are reimbursed are not considered
deductible.
A few tax saving deductions will not require that
you fill out the long 1040 form to fully itemize, making it even easier to save
on your tax burden.
The deductions that can be claimed regardless of
whether you itemize or use the standard deduction may surprise you. These
deductions are known as "above the line" deductions because they do not require
itemization of all expenses to claim these income tax reductions. For example,
did you know that the first $2,500 of interest paid to student loans is
deductible? It is! Did you know that the first $4,000 of tuition and fees for
certain expenses associated with higher education is deductible? If you had to
move because of your job and the expenses were not reimbursed to you or paid by
your employer, that amount is another deduction frequently missed. There is
also a new deduction for travel expenses incurred by military reservists that
have to travel for more than 100 miles and remain away from home overnight.
If you are self-employed, there are above the line
deductions that you need to be aware of as well. All of the cost of your health
insurance premiums obtained through your self-employment for both yourself and
your family is counted as an income tax deduction. Half of the social security
and Medicare taxes you paid in are also deductible as are your contributions to
retirement plans.
Among the itemized deductions frequently missed by
taxpayers are union fees, non-commuting travel expenses and the cost of
continued education required by your job status such as recertification
courses. You can even take the cost of safety deposit boxes, tax preparation
expenses and some legal fees such as deductions that many people completely
forget about. Of course, the standard itemized deductions that almost every one
knows about include medical expenses if over certain limits, state and local
taxes, charitable contribution and common business expenses such as uniforms.
If you own a business, you can use Schedule C to
include deductions that might otherwise not be considered. The cost of
advertising and promoting your business and carrying business liability
insurance are deductible expenses. The cost of having an office in your home is
a deductible expense as well. Certain legal and professional service fees can
be an income tax deduction. Benefits and wages paid to employees including
contributions to their retirement plans can represent a huge deduction for the
business owner.
In order to ensure that you don't miss some large
deductions that could save you a great deal of money, it is wise to consult
with an income tax professional so that you don't miss any of these commonly
missed tax deductions. Take the time to become better acquainted with tax
professionals who can teach you how to maximize your tax deductions and learn
about income taxes along the way.
