Sometimes it seems like you need an MBA, a PHD, or some other multi-letter, high-level academic degree to keep up with the IRS and the 1040 forms that seem to change every year. And when it comes to what’s deductible, what’s not deductible, changes in the deductibles, half deductions, partial deductions and every other confusing percentage of a number, it’s almost impossible to keep up. Not to worry, for the normal, time-honored deductions don’t change; it’s the trendy ones that soak up their 15 minutes of the sun before heading south for the winter that you have to watch out for.
Here’s a list of legal deductions for the average taxpayer to help rid the rumors and get you on the right page:
- Home Mortgage Interest and Refinance Points Paid If you own a home, you’re probably quite familiar with the home-interest deduction on your tax return, as this is the primary reason that taxes are itemized in the U.S. What you may not know is that any points paid on a mortgage refinance are tax deductible. Points are basically a fee paid to get a lower interest rate on a loan, 1 point equaling 1% of the loan. Most homeowners don’t have the cash to pay the points up front, so they add them into the mortgage and pay them over 30 years. It’s not much, but it ads up. If you refinance your note or sell your home, you can deduct all of the points that are left, unless refinancing occurs through the same lender.
- Excise/Property Taxes Taxes are taxes…Why pay twice?
- Non-Cash Charitable Deductions Cleaning out your closets and garage and donating the items to charity is a great deduction, but be sure to get a receipt, as any write off for more than $500 will need one. The amount write-off amount allowed is that of “Fair Market Value”, not what was paid for the items. Think of it as if you were in a second hand or thrift shop and buying the items. What do you think a fair asking price would be?
- Tax and Investment Expenses Tax preparation fees are the big one here, as well as fees paid to an investment banker or specialist for advice or work performed.
- College 529 Savings PlansThis is a select-state deduction only, so check with your local Department of Revenue or tax specialist for details.
- Excess Mileage Driven for Work 44.5 cents is the federal deduction for mileage, so any miles that you drive in addition to your normal commute that are not reimbursed by your employer can be deducted.
- Jury Duty Pay Turned over to Employer If you’re on salary or are paid by your employer for doing your civic duty and your employer demands that you turn over the check you receive, you don’t have to pay taxes on it. That’s it.
- Job Hunting Expenses Tolls, fuel, lunch, mileage, plane fare and lodging are all deductible when you’re searching for a job within your field. Sorry recent graduates on the hunt for job #1, for you can’t deduct this. You can, however, take the moving expense deduction if you need to relocate for your very first source of employment.
- State Sales Tax
You can deduct the higher of state sales taxes paid and state/local income taxes on your federal return. If you live in a state that has a sales tax, but doesn’t have an income tax, you’re definitely better off choosing to deduct the state sales taxes paid than nothing. For the rest of us, the income tax is usually the higher deduction of the two.
Of course, if you have any concerns as to whether or not something qualifies for a deduction, contact an accountant or other tax professional. If you feel that you have found a “gray area”, or loophole in the system, its best if you stay on the safe side, as you’re probably not the first to try that avenue when completing your tax return.
