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1. State sales taxes. Although all taxpayers have a shot at
this write-off, it makes sense primarily for those who live in states
that do not impose an income tax. You must choose between deducting
state income taxes or state sales taxes. For most citizens of
income-tax states, the income-tax deduction is a better deal.
IRS has tables for residents of states with sales taxes showing how
much they can deduct. But the tables aren't the last word. If you
purchased a vehicle, boat or airplane, you get to add the state sales
tax you paid to the amount shown in IRS tables for your state, to the
extent the sales tax rate you paid doesn't exceed the state's general
sales tax rate. The same goes for home building materials you
purchased. These items are easy to overlook. The IRS even has a calculator on its Web site to help you figure the deduction, which varies by your state and income level.
2. $250 educators' expenses. Teachers and their aides can
deduct up to $250 they spent in 2007 for books and classroom supplies.
If you qualify, put your deduction on line 23 of the Form 1040. You get
this deduction regardless of whether you itemize.
3. College tuition. You may qualify to deduct up to $4,000
you paid in college tuition in 2007 for yourself, your spouse or a
dependent. This break can pay off if your income is too high to qualify
to claim the Hope or Lifetime Learning credit. You also get to claim
this deduction regardless of whether you itemize.
4. Student loan interest paid by Mom and Dad. Until recently,
if parents paid back a student loan incurred by their children, no one
got a tax break. To get a deduction, the law held that you had to be
both liable for the debt and actually pay it yourself. But now there's
an exception. If Mom and Dad pay back the loan, IRS treats it as though
they gave the money to their child, who then paid the debt. So, a child
who's not claimed as a dependent can qualify to deduct up to $2,500 of
student loan interest paid by mom and dad.
5. Out-of-pocket charitable contributions. It's hard to
overlook the big charitable gifts you made during the year, by check or
payroll deduction. But little things add up, too, and you can write off
out-of-pocket costs you incur while doing good works. Ingredients for
casseroles you regularly prepare for a nonprofit organization's soup
kitchen, for example, or the cost of stamps you buy for your school's
fundraiser count as a charitable contribution.
6. Moving expense to take first job. Here's an interesting
dichotomy: Job-hunting expenses incurred while looking for your first
job are not deductible; but moving expenses to get to that first job
are. And you get this write-off even if you don't itemize. If you moved
more than 50 miles, you can deduct the cost of getting yourself and
your household goods to the new area, including 20 cents a mile (and
parking fees and tolls) for driving your own car.
7. Military reservists travel expenses. If you are a member
of the National Guard or military reserve, you may deserve a deduction
for travel expenses to drills or meetings. To qualify, you must travel
more than 100 miles and be away from home overnight. If you qualify,
you can deduct the cost of lodging and half the cost of your meals,
plus 48.5 cents a mile (and any parking or toll fees) for driving your
own car. You get this deduction regardless of whether you itemize.
8. Child-care credit. A credit is so much better than a
deduction: It reduces your tax bill dollar for dollar. So missing one
is even more painful than missing a deduction that simply reduces the
amount of income that's subject to tax.
It's easy to overlook the child-care credit if you pay your
child-care bills through a reimbursement account at work. Until a few
years ago, the child-care credit applied to no more than $4,800 of
qualifying expenses. And, the law allows you to run up to $5,000 of
such expenses through a tax-favored reimbursement account at work. Now,
however, up to $6,000 (for two or more children) can qualify for the
credit ... but the old $5,000 limit still applies to reimbursement
accounts. So, if you run the maximum $5,000 through a plan at work, but
spend more for work-related child care, you can claim the credit on
that extra $1,000. That would cut your tax bill by at least $200.
9. Estate tax on income in respect of a decedent. This sounds
complicated, but it can save you a lot of money if you inherited an IRA
from someone whose estate was big enough to be subject to the federal
estate tax.
Basically, you get an income-tax deduction for the amount of estate
tax paid on the IRA balance. Let's say you inherited a $100,000 IRA,
and the fact that the $100,000 was included in your benefactor's estate
added $45,000 to the estate tax bill. As you withdraw the money from
the IRA and pay tax on it, you also get to deduct a proportional amount
of the estate tax paid. If you withdraw $50,000 in one year, for
example, you get to claim a $22,500 itemized deduction on Schedule A.
10. State tax you paid last spring. Did you owe tax when you
filed your 2006 state tax return in the spring of 2007? Then remember
to include that amount with your state-tax deduction on your 2007
return, along with state income taxes withheld from your paychecks or
paid via quarterly estimated payments.
11. Refinancing points. When you buy a house, you get to
deduct points paid to get your mortgage in one fell swoop. When you
refinance a mortgage, though, you have to deduct the points over the
life of the loan. That means 1/30th a year if it's a 30 year mortgage
-- that's $33 a year for each $1,000 of points you paid. Not much,
maybe, but don't throw it away. And, in the year you pay off the loan
-- because you sell the house or refinance again -- you may get to
deduct all as-yet-undeducted points. You do unless you refinance with
the same lender. In that case, you add points on the latest deal to the
leftovers from the previous refinancing and deduct the expense ratably
over the life of the new loan.
12. Reinvested dividends. This isn't really a deduction, but
it is a subtraction that can save you money.
If, like most investors, you have mutual fund dividends
automatically invested in extra shares, remember that each reinvestment
increases your "tax basis" in the fund. That, in turn, reduces the
taxable capital gain (or increases the tax-saving loss) when you redeem
shares. Forgetting to include the reinvested dividends in your basis --
which you subtract from the proceeds of sale to pinpoint your gain --
means overpaying your tax.
13. Jury pay paid to employer. Some employers continue to pay
employees' full salary while they are doing their civic duty but ask
that they turn over their jury fees to the corporate treasury. The only
problem is that the IRS demands that you report those fees as taxable
income. You've always had a right to deduct the amount, so you weren't
taxed on money that simply passed through your hands. But now tax forms
include a line dedicated to this deduction.
Are you looking for more tax deductions? Lion Tax Help
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