FEATURE ARTICLE: What Tax Deductions Are Still Available to Me?
Tax reform measures are enacted frequently by Congress, which makes it hard for U.S. taxpayers to know which deductions are currently available to help lower their tax liability. In fact, a former head of the IRS once said that millions of taxpayers overpay their taxes every year because they overlook one of the many key tax deductions that are available to them.
One of the most overlooked deductions is state and local sales taxes.
Taxpayers may be able to take deductions for student-loan interest, out-of-pocket charitable contributions, moving expenses to take a first job, the child care tax credit, new points on home refinancing, health insurance premiums, home mortgage interest, tax-preparation services, and contributions to a traditional IRA.
Of course, some tax deductions disappear as adjusted gross income increases. And some deductions are subject to sunset provisions, which your tax professional can help you navigate.
Another key deduction is unreimbursed medical and dental expenses.
Remember that you may only deduct medical and dental expenses to the extent that they exceed 7.5% of your adjusted gross income (AGI) and were not reimbursed by your insurance company or employer.*
In addition to medical and dental expenses, certain miscellaneous expenses — primarily unreimbursed employee business expenses — can be written off if they exceed 2% of AGI. Some of the expenses that qualify for this deduction are union dues, small tools, uniforms, employment agency fees, home-office expenses, tax preparation fees, safe-deposit box fees, and investment expenses. Your tax advisor will be able to tell you exactly what’s deductible for you.
The end of the year is the time to take one last good look to determine whether you qualify for a tax credit or deduction or whether you’re close to the cutoff point.
If you’re not close, you may opt to postpone incurring some medical or other expenses until the following year, when you may be able to deduct them.
On the other hand, if you’re only a little short of the threshold amount, you may want to incur additional expenses in the current tax year.
With a little preparation and some help from a qualified tax professional, you may be able to lower your income taxes this year. You just have to plan ahead.
* The Patient Protection and Affordable Care Act of 2010 raises the floor on itemized medical expenses to 10% of AGI beginning in 2013. 1–2) Kiplinger.com, December 2010
MONEY SAVING TIP: Don’t carry excessive debt.
Some debt in our lives may be essential. We may need a mortgage to purchase a home, we may need to use our credit card to make purchases until pay-day, but your aim to save money should be to have as little debt as possible. Credit Card deb is typically the most expensive debt we may carry. You will be able to save money every month if you make it an absolute rule to pay off your outstanding balance every month. If you can have the discipline to do this you will save money by effectively having no debt, and thus no interest charge on your credit card(s).
DID YOU KNOW…about the ‘magic’ of display?
We can learn a lesson in Underhill’s book from a story told by a retailer about a tempting display of T-shirts.
“We buy them in Sri Lanka for $3 each. Then we bring them over here and sew in washing instructions, which are in French and English. Notice we don’t say the shirts are made in France. But you can infer that if you like. Then … we fold them just right on a tasteful tabletop display, and on the wall behind it we hang a huge, gorgeous photograph of a beautiful woman in an exotic locale wearing the shirt.”
Resist the urge: “Write a monthly mall shopping budget and stash cash in an envelope specifically for that purpose. When the envelope is empty, stop spending,” says Ramsey. “A written budget makes you think twice when you are tempted by impulse buys.”