We Know: 10 Common Tax Deductions (You May Have Forgotten to Take)
Stay ahead of the curve and be aware of current tax law so you don't end up missing Uncle Sam's rewards. Here are 10 common deductions that you may have forgotten while doing your taxes.
1. Save with medical costs that exceed 7.5% of your adjusted gross income (AGI).
You can't claim insurance co-payments, but you can claim medical expenses that exceed more than 7.5% of your AGI. Deduct your contacts, eyeglasses, hearing aids, prescription medications, medically prescribed equipment expenses, and the gas and mileage it takes for you to drive to the doctor's office. If you're self-employed, you get to deduct 100% of your health insurance premiums above the limits of your AGI.
2. Pick up the tab for your elderly parents.
If your parents live in a nursing home or if you support your parents in any way (even if they live in their own house), you can claim them as your dependents provided they don't make more than $3200 in annual wages.
3. Itemizers - deduct your state's general sales tax in lieu of state and local income taxes.
Congress came up with a new deduction for tax years 2004 and 2005 to create a level playing field for all taxpayers (some states don't have a sales tax). You can itemize any general sales taxes you paid during the tax year on your federal return exceeds the state and local taxes income taxes you paid. Unfortunately, you can't pick both.
4. College really pays.
Take some college courses to brush up on your job skills and benefit from the Hope Learning Credit (maximum of $1500 deduction) or Lifetime Learning Credit (up to $2000) depending on your AGI. Higher income earners who don't qualify for these credits can take a deduction of $3000 that reduces the AGI.
5. Start saving for retirement.
Contribute to your IRA account and claim as much as 50% of the first $2000 you invest.
6. Charity for a good cause.
Make charitable donations between August 28 and December 31 and receive a donation receipt that will be 100% deductible at the end of the year. Remember to get receipts for non-cash contributions and break them down into categories if the total exceeds $5000.
7. Save on gas and buy the hybrid.
With soaring gas prices, why not be one of the first 60,000 customers and purchase the hybrid? You can get up to a $3400 tax break and maybe earn the privilege of driving in the carpool lane.
8. Why buying that home was a good point.
Uncle Sam encourages home ownership. He allows you to deduct interest payments of up to $100,000 made while purchasing a home, provided you meet the income requirements. Those who refinance can deduct the charges attributed to points.
9. Score $250 for the educator.
Educators who spend their own earnings for classroom materials can take a deduction for as much as $250.
10. Keep the business in the family: hire your children.
By hiring your children aged 17 or younger as your employees, you can avoid paying social security taxes and deduct their salaries as a business expense. Make sure your children earn no more than $4850 each during the year.