Filing income taxes are difficult, especially if you’re one of those people who want to do the paperwork yourself. Sometimes tax preparers can cost a fortune, and doing your own tax returns means that you can take your time finding any and all of the little details that help you achieve a sizeable refund.
However, some people are just not aware of the deductions that are available to them. Of course, the IRS does not advertise these write-offs, and trying to find them in an IRS instruction booklet is like reading Greek. It’s nearly impossible to decipher what is and what is not available to you.
Some of the newer software, such as Turbo-Tax will often make suggestions, but most people want to avoid the ‘red-flag’ that can often trigger an audit, so being unaware and in the dark as to which deductions are truly legitimate can be taxing (pun intended.)
First, it is important to understand that there are such things as tax credits, and deductions. Depending on whether you itemize or not is a big factor. The standard deduction for those who do not itemize, in 2010 was $5,700 for single people and $11,400 for married couples who file jointly. In order to be eligible to itemize your deductions must exceed the standard amounts.
Generally, for most homeowners, the mortgage interest alone exceeds the standard deduction. But Congress has recently approved a few deductions that are available to you even if you don’t itemize. So, either way, you need to understand what the deductions, and tax credits are that might be available to you to get more back at tax time.
Here are some suggestions, although they may not fit every individual, they will give you the opportunity to look into, to find out if you may qualify.
1. Student loan interest
As of the 2010 tax year, interest on student loans is now available of up to $2,500 on both private and federal student loans. As long as the loan is for higher education. However, if your gross income was between 60 and 75 thousand dollars, single, and $120 to 150 thousand dollars, you’ve hit the limit and cannot deduct this expense.
2. Moving expenses
Yes, you could always deduct moving expenses, but now most of your moving expenses can be deducted and not just a portion. The limit is that the new company is at least 50 miles further than your last job.
If you meet this distance requirement, there are many deductions that include packing, transporting (moving truck) your household goods, shipping your vehicle and pets to your new home, as well as storage and travel for both you and your family.
3. Early withdrawal penalties
If you have a certificate of deposit early withdrawal penalty, this can be deducted. However, withdrawing from a retirement account is not included in this deduction, and doing so before age 59 ½ can cost you a 10% penalty, plus income tax. Best to keep some liquid funds in a COD (Certificate of Deposit) for emergencies.
4. Job search expenses
This is a great deduction, especially in times when work is scarce, and if you were out of work, you can deduct some of your costs in searching. The deductions include recruiter expenses, resume preparation, travel to jobs and interviews, including the airline expense, hotel and car.
The drawback to this deduction is that you must be searching for a job within your profession. You cannot deduct expenses incurred for a job that is out of your field.
5. Gambling losses
Yep, a trip to a casino can now be written off if you deduct those losses against any winnings you may have incurred. So, the next trip to the casino should be recorded, and each dollar you lay down should be included in your deductions. Don’t forget, gambling income is taxable, and deducting your loss will reduce your tax debt.
6. Charitable noncash contributions
Hopefully everyone knows that charity is a tax deduction. But, when you don’t give cash, such as donating clothing, food to a charity drive, furniture, or whatever else you donate can be deducted. All you need is a receipt from Goodwill, or any other charity organization with a simple estimate of the worth.
Even if you drop your clothes, or donations into a drop box, and do not get a receipt, you can estimate the expense yourself, however if you get audited, you may not get the deduction.
7. Refinancing points
If you refinanced your home, all of the closing costs, including points you paid to the refinance process are also deductible. Those points can add up, but must be deducted in increments. The limits for 2010 were $70.00, but can be accrued each year until the entire amount is deducted. For example, you paid $2500 in points, you can deduct $70 per year until fully deducted. In 2011, the amount will be increased to $120 and even though it’s not a lot, it adds up.
8. Health insurance premiums
These are potential deductions, with rules in place, however – if you are self employed and not covered by an employer plan, you can deduct 100% of your health insurance premiums.
If you are under an employer paid plan, your medical expenses must be higher than 7.5% of your adjusted gross income to see a benefit.
9. Educator expenses
If you’re a teacher or educator you can now write off as much as $250 for materials you bought in 2010, including books, supplies, pencil sharpeners and even computer equipment. If your are in Australia there is the education bonus for tax payers with school children.
10. Energy savings home improvement credit:
These are great deductions because they are dollar-for-dollar tax reductions. Replacing doors, windows, high-efficiency furnaces, water heaters, etc., can all be deducted, with a $1,500 limit, but they are deductible and this is a very helpful tax deduction.
Since the economy has taken a down turn, and jobs are scarce, there are many other deductions you may be qualified for. For a complete list, see this website http://www.irs.gov/ for all tax credits and deductions for 2010 and 2011.
Kristy Ramirez writes for Life Insurance Finder Australia, a free insurance comparison website, where she helps people to compare and select the best life insurance or trauma insurance policy to meet their needs at the cheapest possible price.