TOP 10 TAX DEDUCTIONS 1.Charitable noncash contributions: Charity, as I hope everyone remembers, begins with a tax deduction. Now, lets say you emptied your closets and gave everything to Goodwill or a similar charity. The value of your donated items -- clothes, furniture, whatever -- is deductible. Get a written receipt. With noncash charitable contributions, the rule is simple: No receipt means no deduction if you get audited. Clothes and household goods must be in good or better condition to get the deduction. 2. Points on refinancing: With interest rates remaining so low over the past few years, lots of homes have been refinanced, sometimes more than once. Any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan. So if you refinanced your mortgage on June 1, 2012, for a 20-year term, seven out of 240 months will have passed before Dec. 31, 2012. If you paid $2,400 in points, you can write off $70 ($10 a month for seven months) for 2012. You can write off $120 for 2013 and each year thereafter until the points have been deducted in full. The amount may not be huge, but every little bit helps. If youre looking to refinance. 3. Old points on refinancing: This is one deduction lots of people miss. All unamortized points on an old refinancing are deducted in the year of a new refinancing. So lets say you refinanced on June 1, 2010, and paid $2,400 in points. You refinanced again on June 1, 2011. You can deduct all the remaining points on the 2010 loan on your 2011 return. Thats $2,280 plus the $50 you could deduct for January through May 2011. Likewise, if you refinance the 2011 loan in 2013 (provided interest rates stay low and a lender still likes you), you will be able to write off the remaining balance on your 2013 return. 4. Health insurance premiums: Any health insurance premiums you pay, including some long-term-care premiums based on your age and Medicare premiums you pay, are potentially deductible. But you have to add these to your medical expense pot. Medical expenses have to exceed 7.5% of your adjusted gross income before they give you any tax benefit. If youre self-employed and not covered by an employer-paid plan, though, you can deduct 100% your health insurance premiums (to the extent of your net income) above the line. Above the line means the expense is included in adjusted gross income and doesnt get lumped in with itemized deductions. Not only do you not have to exceed the 7.5% floor, you dont even have to itemize. The Small Business Jobs Act of 2010 changed the rules again. Now self-employed individuals can also deduct their health insurance premiums in computing their Social Security tax obligation. 5. Educator expenses: Limits: You can claim up to $250 of classroom expenses for supplies, materials, books, software, and so forth. If both you and your spouse are educators, you can both claim up to $250 of expenses for $500 total on a joint return. Any classroom expenses in excess of these limits can be deducted as an employee business expense, which is a miscellaneous itemized deduction subject to threshold of 2% of adjusted gross income. Qualifications: You are a teacher, aide, instructor, counselor, or principal, and worked in a school at least 900 hours during the school year. Only grade school and high school educators qualify (kindergarten through 12th grade). 6. Higher education expenses: The American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit provides up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. The tax credit is scheduled to have a limited life span: it will be available only for the years 2009 through 2017, unless Congress decides to extend the credit to other years. The credit is worth up to $2,500 on the first $4,000 of qualifying educational expenses, which include course materials as well as tuition. The American Opportunity credit applies to all four years of undergraduate college education. The credit is gradually reduced (or phased out) for income from $80,000 to $90,000 (or $160,000 to $180,00 for joint filers). The tax credit is not available for people with incomes above the phase out range. Up to 40% of the credit is refundable, meaning that it can generate a refund larger than the amount of payments you made. 7. Energy Savings Home Improvement Credit This credit applies to energy efficiency improvements in the building envelope of existing homes and for the purchase of high-efficiency heating, cooling and water-heating equipment. Efficiency improvements or equipment must serve a dwelling in the United States that is owned and used by the taxpayer as a primary residence. The maximum tax credit for all improvements made in 2011, 2012, and 2013 is $500. The cap includes tax credits for any improvements made in any previous year. If a taxpayer claimed $500 or more of these tax credits in any previous year, any purchases made in 2011, 2012, or 2013 will be ineligible for a tax credit. 8. Investment and tax expenses: Many of us forget tax-planning and investment expenses because they fall under miscellaneous itemized expenses. Further, the 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 subscriptions -- such as Forbes, Fortune and Barrons -- 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? 9. Casualty deductions: Losses incurred because of a casualty, disaster, or theft may be tax-deductible. Casualty and theft losses are reported on Form 4684 and Form 1040 Schedule A. Casualty Losses A casualty is the loss of property (including damage and destruction) because of a sudden event. The event must be identifiable, unexpected, and unusual. Events that meet this criteria include: • car accidents, • disaster-related demolition, • earthquakes, • fires, • floods, • hurricanes, • shipwrecks, • storms, • terrorist attacks, • tornadoes, • vandalism, and • volcanic eruptions. 10. Retirement tax credit The retirement tax credit is designed to give moderate- and low-income taxpayers an incentive to save for retirement. If you make a contribution to your retirement account, that money isnt taxed currently. So its like you get a deduction off your income. In addition, you get a credit of as much as 50% of the first $2,000 invested. Thats 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. Thats a nice rate of return on a $2,000 investment. Moreover, if you qualify, you can deduct as much as $5,000 ($6,000 if youre 50 or older) in contributions to an IRA. The tax credit disappears as your adjusted gross income increases. But singles with adjusted gross incomes up to $28,250 and joint filers with AGIs up to $56,500 qualify. The limit is $42,375 for heads of households. Contributions to 401ks, 403bs, Simplified Employee Pension plans, traditional and even Roth IRAs qualify.
Posted on: Mon, 11 Nov 2013 20:44:46 +0000
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