10 BIG TAX DEDUCTIONS PEOPLE MISS
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Student higher education expenses
One for the teachers, one for the students.
If your adjusted gross income isn't more than $65,000 ($130,000 on a joint return), you can get an above the line deduction of as much as $4,000 for any higher education expenses you paid. See if you qualify for the Hope or Lifetime Learning Credit. The Hope Credit is worth $1,500 per student subject to income limits. The Lifetime Learning Credit is worth $2,000 per return. Compare, and go with the one which gives you the biggest benefit.
Clean fuel deduction
You can get another above the line deduction of up to $2,000 for the cost of buying a clean fuel vehicle. That's a car that uses a significant source of energy other than gasoline. Hybrid cars qualify. A hybrid car combines an electric motor with a gas fueled internalcombustion engine. Cars that the IRS has blessed include the Toyota Prius, the Honda Insight and the Honda Civic Hybrid.You get the deduction in the year you start using the car, and you must be the original owner. Take it on your Form 1040 by writing in "clean fuel."
Investment and tax expenses
Many of us forget tax planning and investment expenses because they are part of miscellaneous itemized expenses. Their total must exceed 2% of your adjusted gross income before you get any tax benefit. Expenses to track include your employee business expenses, tax preparation fees and even the portion of your legal or accounting fees relating to tax planning. For example, in a divorce, the legal time spent relating to the tax aspects of alimony and child support would qualify. So too would the tax aspects of estate planning.
Many people shortchange themselves on the deduction of investment expenses. They remember the safety deposit box fees. But how about the annual fee paid your broker and any IRA fees you pay directly? You may remember the cost of your investment publications on subscription such as Forbes, Fortune, Business Week, Worth and Barron's. But how about the investment newspapers you buy off the newsstands? You keep track of your long distance phone calls to your broker and investment adviser, but how about the mileage to go see them?
Casualty deductions
If your area is declared a disaster area, you can claim your loss either on your tax return. You can confirm whether you qualify on the Federal Emergency
Management Agency web site.
Retirement tax credit
This one is even better than a deduction. It's a credit for a dollar for dollar reduction in your tax not just in your taxable income. And, it also can come with a deduction. This deduction is designed to give moderate and low income taxpayers an incentive to save for retirement. Make a contribution into your retirement account. That money isn't taxed currently. So, it's like you got a deduction off your income. In addition, you get a credit of as much as 50% of the first $2,000 invested. That's as much as a $1,000 reduction in your tax. You get the $1,000 tax reduction as well as the $2,000 reduction in your income. That's a nice rate of return on a $2,000 investment. Moreover, if you qualify, you can deduct as much as $3,000 in contributions to an IRA. The tax credit disappears as your adjusted gross income increases. But singles with AGIs up to $25,000 and joint filers with AGIs up to $50,000 will qualify. The limit is $37,500 for heads of households. Contributions to your 401(k), 403(b), SEP, traditional or Roth IRAs will qualify as well.
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