Can you feel the excitement in the air? That's right. It's tax season again. All right, I'll admit that for most people, doing their taxes ranks up there with root canals and fingernails on chalkboard. But you can lessen the pain of taxes by doing everything you can to increase your deductions and cut your tax bill.
For most Americans that starts with using your Schedule A to the fullest. Unfortunately, most people put off doing their taxes and in the last-minute rush on April 14 overlook many ways to cut a tax bill. So now, with plenty of time to spare, here are some itemized deductions you may have forgotten about.
Nobody likes to get sick. But if you've had a rough year medically, don't compound the problem 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 get this deduction up to that ceiling.
- Count travel expenses to and from medical treatments. The IRS's web site posts current mileage rates (www.irs.gov).
- If you made insurance payments from already taxed income, add it in here. This includes the cost of long-term care insurance, up to certain limits based on your age.
- What about things your insurance didn't cover, but you needed anyway? This is where you can recoup some of the costs. This includes an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids and artificial limbs.
- Don't forget about purchases made to help alleviate medical conditions. The doctor told you to get that humidifier to help relieve your chronic breathing problems. That means the device -- and additional electricity costs to operate it -- could be at least partially deductible.
- The IRS also has deemed costs for programs to help you kick the smoking habit are medically deductible, as are weight-loss programs undertaken at a physician's direction to treat an existing ailment such as heart disease.
If you're going to pay taxes, it's nice to know that some of them are deductible. If you live in a state with an income tax, you already know the value of deducting those taxes from your federal ones. But don't limit yourself here.
You also can deduct personal property taxes, intangible taxes on investments, real estate taxes, and in some cases the disability taxes you pay. Go a bit further down the government tax chain, too. Did you pay city or county income or property taxes? Then throw them in here.
This means those taxes you paid directly, not just the ones withheld from your paycheck and that show up on your W-2.
And on 2004 and 2005 returns, an old tax deduction returns: sales taxes. If you itemize, this temporary new deduction lets you choose between deducting income taxes or sales taxes you paid.
Home Sweet Home.
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. If you don't get a statement from your bank with this information, 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.
It Pays to be Giving.
Remember that charity deductions include more than cash and clothing donations. 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 non-cash 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. Again, check the agency's web site for the current per-mile rate for travel done to help out a charitable organization.
Myriad Miscellaneous Expenses.
This category can be fun, if you've got the patience --- and receipts -- to back up your spending. But you need to find everything you can 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. So what can get you over the top, let's take a look:
- If you looked for a new job this year (and who didn't), 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 here toward that hobby can be toted up as a miscellaneous expense. But you can't deduct more than you made on the hobby.
- Gambling losses. I love this deduction. 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.
- Professional tax help. The accountant lobby must be pretty strong because if you paid someone to do your taxes, you can deduct that expense.