Making the Most of Uncle Sam’s Generosity
Most taxpayers probably know that the key to getting the best possible refund (or at least the lowest possible tax burden) is to milk the deductions to their absolute maximum, taking advantage of every single one for which they qualify.
But the more complicated process of itemizing deductions doesn’t really pay unless the total you can deduct exceeds the Standard Deduction for your filing status – $5,800 for single filers or married taxpayers filing separately, $11,600 for married couples filing jointly and for qualifying widow(er)s, and $8,500 for those filing as head of household.
The additional standard deduction for people 65 or older and/or blind taxpayers are $1,450 for single and head-of-household filers and $1,150 for married filers (joint and separate) and qualifying widow(er)s.
As a general rule, remember that medical expenses are only deductible to the extent that the total exceeds 7.5% of your Adjusted Gross Income, and most Miscellaneous Deductions are allowed only to the extent the total exceeds 2% of AGI.
If you’re one of those taxpayers who will benefit from itemizing your deductions on Schedule A, don’t forget the following 10 often-overlooked deductions.
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Travel expenses to and from doctors, dentists, hospitals and other health care providers to receive medical care, and round-trip travel costs to visit a sick spouse or a dependent are deductible if the visits are recommended by a doctor as part of the patient’s treatment.
If you take a taxi, bus, train or ambulance then you can deduct the actual expense of the trip, and if you drive you can deduct 19 cents per mile traveled between Jan. 1 and June 31 and 23.5 cents per mile driven from July 1 to Dec. 31, plus any parking fees and tolls.
The cost of lodging you (or anyone accompanying a patient like a parent or spouse) stay in while away from home for medical care is also deductible, up to a maximum of $50 per person per night. Note that you can deduct the cost of the hotel room, but not the dinner bill.
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Health insurance premiums, whether you pay them directly or whether they are deducted from your payroll or pension check, are deductible.
That includes COBRA payments, prescriptions, contact lens insurance, separate charges for medical coverage included in a dependent child’s college fees, and the amount deducted from monthly Social Security and Railroad Retirement benefits to pay for Medicare Part B and Part D premiums.
And don’t forget premiums paid for long-term care insurance. The deduction is limited based on the taxpayer’s age: $340 can be deducted for people 40 and under, $640 for those who are 41-50, $1,270 for taxpayers age 51-60, $3,390 for age 61-70 and $4,240 for those older than 70. Each spouse is treated separately if both can claim the deduction.
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Medical Expenses for Dependents
You can deduct any medical bills you paid for a person who would otherwise qualify as a dependent but who you cannot claim as one (because his or her income exceeds the $3,700 maximum allowed for dependents or the dependent filed a joint return with a spouse). You can also deduct medical expenses you paid for a person who was your dependent in the year the expenses were incurred but not in the year the expenses were actually paid.
For example, if your son had an eye exam in 2010 when he was a full-time student and lived with you, but you did not actually pay the doctor until 2011, after he graduated, got a full-time job, and moved out on his own, then that is deductible.
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Mandatory Employee Contributions
Mandatory employee contributions to a state Unemployment, Disability, or Family Leave fund that are withheld from your paycheck, as is the practice in Alaska, California, New Jersey, New York, Pennsylvania, Rhode Island and Washington, are deductible.
Note, however, that these taxes are considered state income taxes for filing purposes, so if you elect to deduct sales tax you cannot also deduct state unemployment, disability and family leave withholdings.
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Real Estate Taxes Paid
If you bought property recently, the amount of real estate taxes you paid as an adjustment at the closing for the purchase or sale of a residence or vacation property is deductible. This is the estimated real estate tax assessment from the date of closing to the next regular tax payment date on a purchase, or the amount from the last regular payment to the date of closing on a sale. Some states bill the real estate taxes on a quarterly basis, while others bill only once a year.
Be sure to include the portion of your annual maintenance fee assessment for a time-share condo, which represents your share of the property’s real estate taxes. This amount should be identified on your annual billing statement.
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The “unamortized” points from a refinanced home mortgage or a vacation home purchase when the mortgage loan that generated the points is paid off early, is refinanced again with a new lender, or the property is sold, is another real-estate-related expense that you can deduct.
Generally when you refinance a home mortgage or buy a vacation property, any points charged on the loan must be deducted, or amortized, over the life of the mortgage. When the mortgage is paid off early the balance of the points may be deducted in full in the year the loan is paid off.
If you refinance with the same lender you must continue to amortize the points on the original loan, in addition to any points charged on the new loan.
For example, if in 2011 you refinanced with Chase a mortgage that had originally been held by Wells Fargo, you can deduct the unamortized points from the Wells Fargo mortgage on your 2011 Schedule A. But if you refinanced with Wells Fargo you must continue to amortize the original points.
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Volunteer or Donation-Related Expenses
Any out-of-pocket expenses related to donations or volunteer service to a qualifying church or charity can be deducted, like the cost of the ingredients of home-made cookies or a cake donated to a church bake sale. A scoutmaster can also deduct the cost to purchase and launder his uniform.
The deduction includes travel and transportation expenses incurred while performing the volunteer service, so if you deliver meals for a Meals on Wheels program, or drive elderly patients to medical appointments for a local charity or agency, or drive members of your son’s high school hockey team to away games then you can deduct 14 cents per mile in lieu of actual gas expenses, plus any parking fees and tolls.
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Job Search Expenses
The cost of looking for a job in your current line of work, including fees paid to employment agencies and consulting forms for securing a job, preparing a resume or career counseling, the cost of typing, printing and mailing resumes, telephone calls to set up interviews, newspapers and periodicals purchased for employment ads, and round-trip travel or transportation to job interviews, including lodging and meals (at 50%) if you are away from home overnight, can all be deducted as job search expenses on your taxes.
If you drove in the course of your job hunting you can deduct 51 cents per mile for relevant travel from Jan. 1 to June 30 and 55.5 cents per mile for travel that happened from July 1 to Dec. 31.
Expenses to look for work in a new trade or field are not deductible, though, and neither are the costs of finding your first job after graduating from school. You do not have to actually get a new job to be able to deduct the expenses from looking for one. Photo Credit: psd
Training and Education Expenses
The cost of education that is expressly required by an employer, by law, or by government regulation, or that maintains or improves skills required in your current trade or business, can be deducted on your tax return.
The deduction includes the cost of tuition, textbooks, registration fees and supplies, round-trip transportation to the institution, meals (valued at 50% of what you paid) and lodging while away from home, lab fees, student cards, insurance and degree costs, and research and typing expenses for term papers and dissertations.
You can’t deduct the cost of education that is the minimum requirement for a trade or business though, or any that prepares you for a new trade or business, even if you do not intend to enter that trade or business. As an accountant, for example, I could not deduct the cost of classes taken to train me to be able to fix air conditioning units.
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Expenses incurred in connection with the “determination, collection or refund of any tax” (income, estate, gift, property and other taxes imposed at the federal, state or local level), are eligible as deductions.
You can claim the fee paid to your tax professional for preparing or amending your federal, state or local income or estate tax return and for providing tax planning advice, plus the round-trip mileage to meet with the tax pro.
You can also deduct seminars, workshops, software, books, reports, newsletters and publications that provide tax planning and preparation advice and information.
Robert Flach is an expert with almost 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.
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