Monday, January 28, 2008

Read This 1st Tax Filers!!

Here are the 13 most overlooked tax deductions- making mistakes can and does cost us taxpayers millions a year- do not be one of them losing out on good $$$

State Sales Tax
1.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.

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. ax. 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.

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.

4. Student Loan Interest ... Paid by Mom or 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 the loan.

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. 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.


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
It's easy to overlook the child-care credit if you pay your child-care bills through a reimbursement account at work. The child-care credit applies to no more than $6,000 (for two or more children) of qualifying expenses. And, the law allows you to run up to $5K of such expenses through a tax-favored reimbursement account at work. So, if you run the maximum $5K through a plan at work, but spend more for work-related child care, you can claim the credit on that extra $1K. 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.

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. 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.

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.


12. Reinvested Dividends
This isn't really a deduction, but it is a subtraction that can save you money ... and this is a break that many miss.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 means overpaying your tax.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.

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.

1 comment:

The All Seeing Eye said...

Thanks for the helpful post, LaToya. The real kick-in-the-pants with the new tax rebates is that Congress was going to give rebates to Illegal Aliens... Ugh!

Today's $$ Tip

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