Each year people miss
opportunities to take valuable deductions off of their tax bill. Fortunately, tax returns can be amended up
to three years from their due date through IRS Form 1040X. When itemizing deductions, always make
certain to have thorough documentation of your deductible expenses.
Some of the most commonly
missed deductions are:
Real Estate Tax Deductions
Refer to your closing statement for proof of the following
deductions.
- Principal Residence
Acquisition Mortgage Fee – If you bought a principal residence within the
last year and paid “points” on the loan, that “home acquisition mortgage
loan fee” is tax deductible.
- Home Mortgage
Refinance Loan Fees – Any loan fee or points paid when refinancing can be
deducted over the life of the mortgage.
- Loan Fees not
yet deducted – If you refinance a previously refinanced home loan, you may
fully deduct any remaining loan fee not yet deduced in the tax year of the
second refinance.
- Mortgage Prepayment Penalty – Any prepayment penalty
due to paying off a home loan early is deductible.
- Prorated Property Tax – Your share of prorated
property taxes in the year of a home sale is deductible.
Charitable Contributions
If you charged contributions to
qualified charities, the deduction is allowed in the year of the charge, not
when you actually pay your credit card bill.
Make sure you get a receipt for any non-cash items you donate. Out-of-pocket expenses related to charitable
activities such as mileage, parking and tolls are also deductible.
Medical Expenses
The IRS allows a deduction for medical expenses exceeding 7.5
percent of your Adjusted Gross Income.
You cannot include medical costs that were covered by your insurance
company or unqualified expenses such as voluntary cosmetic surgery.
Clean Fuel Deduction
With hybrid cars gaining in popularity, many can benefit from the clean
fuel deduction. The deduction amount is
limited to $2,000 for cars first put into service in 2004 and 2005. The deduction will be reduced to $500 for
vehicles in 2006 after which it will not be allowed.
Miscellaneous Deductions
Miscellaneous deductions, those
that are necessary for the production of income, must add up to two percent of
your Adjusted Gross Income. Miscellaneous
deductions that are allowed include legal and accounting fees, education
expenses related to maintaining or improving job skills, safety deposit box
fees, job seeking expenses (in the same field as your current career),
work-related expenses that have not been reimbursed (such as subscriptions to
publications, professional association membership dues, business liability
insurance, cost of safety equipment, etc.) and investment expenses (such as IRA
fees, mileage and long distance phone calls to your investment advisor,
investment publications, etc.)
Retirement Tax Credit
Moderate and low-income
taxpayers can get a credit of as much as 50 percent of the first $2,000 they
invest in an IRA or 401K.
Moving Expenses
You may
qualify for the moving-cost deduction if you changed both your job site and
your residence but were not reimbursed for household moving costs. To qualify, your new job location must be at
least 50 miles farther from your former home than your old main job location
was. In addition, you must be employed
full time for at least 39 weeks during the 12 months right after you move. If
self-employed you must work at least 78 weeks during the 24 months after you
move.
Casualty Loss
If you suffered a "sudden,
unexpected or unusual" loss (fire, hurricane, tornado, earthquake,
mudslide, flood, theft, riot, embezzlement, vandalism, etc.) and were not
reimbursed by insurance, you may be able to claim a casualty loss tax
deduction.Each loss must be at least $100 and your total losses for the
year need to be at least 10 percent of your adjusted gross income.
