Common, Everyday Tax Deductions

In Part 1 of this series, we looked at 7 year-end tax tips to boost your tax deductions and lower your taxable income. In Part 2 we are going to list the common, everyday expenses that can be itemized in order to reduce the taxes you have to pay Uncle Sam. When you do your taxes, you can choose the standard deduction or choose to itemize your deductions, whichever is more advantageous, in order to reduce your taxable income. The standard deduction for 2007 is as follows:

Single: $5,35
Head of Household: $7,850
Married Filing Joint: $10,700
Married Filing Separately: $5,350
Qualifying Widow/Widower: $10,70
Dependent: $850-$5,350
Additional Amount if Blind: $1,050
Additional Amount if age 65 or older: $1,050

If your itemized deductions are greater then the amount for your category above, you will want to itemize your deductions, provided that you can back up expenses with receipts. Note that itemized deductions are limited to certain income levels. The value of your itemized deductions will “phase out” once your taxable income reaches:

Single: $156,40
Head of Household: $156,400
Married Filing Jointly: $156,400
Married Filing Separately: $78,200
Qualifying Widow/Widower: $156,400

The list below outlines some of the common, everyday expenses that are often overlooked as tax deductible expenses. Complete details and eligibility can be found here: http://www.irs.gov/faqs/faq3.html

Gifts and Charitable Contributions:

• Cash contributions to charities and churches
• The fair market value of property or non-cash donations to charities and churches

Interest & Investments and Transactions:

• Legal fees related to producing or collecting taxable income or getting tax advice
• Hobby expenses, but generally not more than hobby income
• Gambling losses up to the amount of gambling winnings
• Fees to collect interest and dividends
• Investment fees and expenses
• Student loan interest
• Tax preparation fees
• Safe deposit box rental

Medical, Nursing and Home Care:

• Medical, dental, prescription drugs, and other health care costs
• Real Estate & Personal Property
• Depreciation on home computers used for investments
• Real estate (property) taxes
• Interest paid on a home mortgage
• Personal property taxes (such as motor vehicle registration fees)
• State and local income taxes or state and local sales taxes
• Losses because of theft or casualty on personal property and income producing property

Education and Job Related Expenses:

• Job search expenses in your present occupation, including: resume paper, postage and travel expenses, such as meals and lodging when staying away from home, taxi fares, laundry expenses
• Depreciation on a computer or cell phone your employer requires you to use in your work
• Home office or part of your home used regularly and exclusively in your work
• Subscriptions to professional journals and trade magazines related to your work
• Tools, supplies and equipment used in your work
• Travel, transportation, entertainment, and gift expenses related to your work
• Work clothes and uniforms if required and not suitable for everyday use
• Moving expenses for a new job
• Work-related education
• Dues to professional societies
• Passport for a business trip
• Union dues and expenses
• Legal fees related to your job

Millionaire Money Habit: Go through your receipts and credit card statements to collect records of expenses that qualify for deductions. Turbo Tax has a deduction finder calculator to help you find some of these deductions. If you think you will be itemizing expenses this year, rather than taking the standard deduction, look for any 2008 expenses that can be itemized that you can pay in 2007 to increase your deductions. Your January mortgage payment, for example, would qualify.

So far we have looked at 7 year-end tax tips to boost your tax deductions in Part 1, and discussed expenses that can be itemized to take full advantage of lowering your 2007 income taxes. In Part 3 we will discuss what you can do throughout 2008 to prepare to pay even lower taxes next year.