Getting the most from itemized deductions
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Smart taxpayers know deductions can cut a tax bill.
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Smarter taxpayers develop their tax deduction strategy early, getting the most out of the tax breaks and avoiding filing-deadline panic.
Figuring out which deductions can help you is important because they aren’t dollar-for-dollar tax-reduction tools. They can only cut your taxes on a limited basis by reducing your taxable income. Less income equals less tax.
That means every bit that reduces your taxable income is critical to cutting your final payment to Uncle Sam — or getting a bigger refund. If you’re going to add up your deductible expenses, add them all up on your Schedule A, especially since many deductions require you to reach a certain level before you can use them.
Tax-savvy filers know that some useful deductions get overlooked in the last-minute rush to find ways to cut a tax bill. So now, with plenty of time to spare, here are some itemized deductions you may have forgotten about.
Many medical costs to consider
There is never anything good about being sick, but don’t add to your ailments by overlooking medical costs that you can deduct.
Since total medical expenditures must be at least 7.5 percent of adjusted gross income, many taxpayers don’t even bother with this one. But there are ways the Internal Revenue Service says you can use your medical deductions up to that ceiling. Mileage to and from medical treatments count, as do insurance payments from already-taxed income and treatments your insurance didn’t cover, such as an extra pair of eyeglasses or hearing aids and and even artificial limbs.
Special medical needs
Do you have special needs? The medical-deductions section of your tax form is also where you account for the cost of a wheelchair, crutches and equipment that enables a deaf person to use the telephone or that provides television closed-captioning.
If you purchase a hearing or Seeing Eye dog, Fido’s cost is deductible, too.
Even some home remodeling might be just the prescription for a tax break, as long as you follow your doctor’s orders and the IRS’ rules. If you need, for example, to add a chairlift to get up and down the stairs, this generally is considered a legitimate expense. Here are a host of other deductible projects that make a house more accessible for a handicapped resident or individual with chronic medical problems.
- Adding ramps.
- Widening doors and hallways.
- Lowering counters and cabinets.
- Adjusting electrical outlets and fixtures.
- Installing railings, support bars and other bathroom modifications.
- Changing hardware on doors.
- Grading exterior landscape to ease access to the house.
A word of warning, however: Elevators generally aren’t deductible. The IRS considers this a structural change that could increase the value of your house and therefore doesn’t allow it as a medical deduction.
Yes, there are some good taxes
Some taxes really do come in handy. Many state and local taxes can be deducted on your federal return.
The types Uncle Sam lets you write off include income, sales and real estate taxes on your home. On 2009 returns, some of these deductions are available to taxpayers who claim the standard deduction instead of itemizing, including the deduction for sales tax you paid on a new vehicle.
An interest(ing) deduction
Every homeowner makes sure he gets that statement from the mortgage holder so that chunk of loan interest can be deducted.
But don’t forget that second home or a vacation place with a mortgage. If it meets IRS guidelines for personal use during the tax year, then be sure to include interest paid on that property’s loan on your Schedule A, too.
If it’s a new loan, make sure you add in here any points — money you paid the lender to get the loan. Even if the seller paid the points, you, the buyer, can write them off on your return. If you don’t get a statement from your bank with information on points you paid, pull out your closing paperwork and you’ll find it listed there.
Investments can help you out here, too. Did you borrow money to buy that hot stock? Interest on that loan is deductible.
Countless charitable contributions
You got the receipt from the Red Cross for your cash donation. You have that one from the Salvation Army for that extra couch you got tired of seeing in the garage.
You’re done here, right? Wrong.
There are many noncash contributions that taxpayers forget to add up.
The IRS allows you to deduct the miles you drove your personal car to the soup kitchen where you volunteer each weekend. The standard mileage rate for travel done to help out a charitable organization is 14 cents per mile.
Are you a Boy Scout or Girl Scout leader? Then the cost of your uniform and its upkeep — dry cleaning, tailoring, repair — is deductible.
Letting the IRS share your losses
Most taxpayers think they can deduct casualty losses only if they are victims of a catastrophic natural disaster.
But you don’t have to suffer through a fire, flood, hurricane, tornado or earthquake to claim a casualty deduction. Losses from theft and vandalism are eligible losses, as are any damages from an automobile accident as long as it wasn’t the result of driver negligence.
Myriad miscellaneous expenses
This is a fun category, if you’ve got the patience — and receipts — to back up your spending. And you’ll need the receipts because this category, like the medical one, is limited. The total of your miscellaneous deductions must be more than 2 percent of your adjusted gross income.
If you looked for a new job this year, be sure to count your job-hunting expenses here. Just remember that your job search has to be in the same field in which you’re already employed. Any subscriptions to work-related publications also can be taken here, as can fees you paid for membership in a professional organization, as long as you weren’t reimbursed by your employer.
Do you have a hobby that nets you a bit of extra spending money throughout the year? Any costs you had toward that hobby can be totaled up as a miscellaneous expense. But you can’t deduct more than you made on the hobby.
Maybe your hobby is a bit more glitzy — trips to Las Vegas or Atlantic City, N.J., for a little recreational gambling. If it wasn’t a good year at the roulette wheel, the IRS lets you deduct your losses. These losses aren’t limited by the 2 percent cap, but you can’t deduct in losses more than you won.
And finally, if this whole deduction process just got too taxing for you and you paid an accountant to figure it out for you, here’s a final itemizing gift from the IRS: Fees paid to professional tax preparers are deductible, too.