This article does not contain tax advice, but simply general information about tax issues. There are a number of factors to consider when taking deductions. Always check with your tax advisor for details first, since there may be income limits or other factors to consider.
The biggest mistake Americans make when it comes to their taxes is failing to take all the deductions to which they are entitled. If you're guilty of letting bona fide deductions slide, you may be paying hundreds perhaps thousands of dollars more in income taxes than necessary. ("Last-Minute Loopholes," by Diane Kennedy, CPA, March 5, 2003, at http://news.yahoo.com.)
If this sounds like you, let this year be different. You have until April 15th to get it right. So, look over the following checklist of what you can deduct if you qualify:
- College tuition and related expenses, up to $4,000 worth (depending on your modified adjusted gross income), for you, your spouse or anyone you claim as a dependent.
- Up to $2,500 in student-loan interest charges paid in 2004 for you or any dependent.
- Higher contribution limits for IRAs (Click here for annual contribution limits), with full or partial deduction possibilities for Traditional IRAs. Your income, filing status, and presence or absence of a retirement plan at work will affect whether or not your contributions are deductible, and whether you'll be eligible for a full or partial deduction, if applicable. For more information, visit the NYLIM Retirement Plan Services Web site .
- Self-improvement expenses, including the cost of weight-loss and smoking-cessation programs prescribed by a doctor.
- An increase in adoption expenses from $5,000 to $10,000.
- All valid medical expenses including out-of-pocket prescription drug costs, eyeglasses, contact lenses, hearing aids, that exceed 7.5% of your Adjusted Gross Income. (Be sure to do the math on this. So, if your income was $70,000 last year, you can deduct all out-of-pocket health care expenses that exceed $5,250.)
- Two thousand dollars if you purchased an approved hybrid car last year.
- If you are self-employed, you may be able to deduct, as an adjustment to income, up to 100% of the amount paid for medical and qualified long-term care insurance on behalf of yourself, your spouse, and dependents.
- Capital losses or charitable contributions that you couldn't deduct in the past may be deductible this year.
- Points incurred if you took out a mortgage (deductible all at once) or refinanced (with the cost spread over the life of the mortgage, in many cases).
- Gambling losses, to the extent they offset declared, taxable winnings.
- Job-search costs, including resume prep and travel, if they exceeded 2% of your AGI. Also generally eligible are relocation expenses.
Caveat: Some of these deductions come with fine-print exceptions or income limits. That's why it is imperative that you talk to your tax advisor before you act. Getting it wrong will only cause you to lose the deduction, pay more taxes, and open you up to a possible audit. So, double check.("Some Deductions Easily Overlooked," Knight Ridder Newspapers, March 23, 2003, at http://www.bayarea.com/mld/cctimes/business/5470283.htm.)
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