The most reliable source for information on legitimate tax deductions is the agency responsible for collecting taxes from the populace: the Internal Revenue Service [www.irs.gov]. The home page directs you to publications answering questions, allows you to order forms and even e-file your return if you meet certain requirements. It may take time to search the site, but you can be assured its accurate.
Standard Deductions
These are an amount set by the IRS based on the filing status you claim: single, head of household, married, married-filing separately. This can include a few key additional deductions such as: the deduction for being blind; over age 65/or disabled; and the deductions for dependents, such as a spouse and children.
Deductions to your gross income
These are the deductions to lower your adjusted gross income. The AGI is the amount used to calculate your tax burden. Any deduction you can take to lower your AGI is a good thing!
alimony- alimony payments required by court order made after 1984. You cannot use Form 1040A or Form 1040EZ if you plan to claim this deduction.
individual retirement account contributions – an IRA is a savings plan that lets you set aside money for retirement and offers you tax advantages while doing so. You may be able to deduct some or all of the yearly contributions to the IRA. IRS Publication 590 tells you the amounts, based on your individual situation, that you can contribute to your IRA and receive tax benefits.
student loan interest – If you are paying on the loans for your education, you might be able to deduct the interest you pay on qualified student loans. [The deduction for the interest on these types of loans does begin to phase out when your Adjusted Gross Income is greater than certain amounts. You will need to check IRS Publication 970 for those income limits.]
employee moving expenses – If you have to move because of a change in your job location or because you began a new job in a new city, you might be able to deduct moving expense. For more information on what is and is not deductible, see IRS Publication 521.
certain self-employment deductions such as health insurance, and self-employment tax reductions. If applicable, these deductions can be entered on the tax form regardless of whether the standard deduction or itemized deductions are utilized.
If you have loaned someone money and are not able to collect that money, you should read IRS Publications 550 and 535 to see if your situation meets the definition of a “valid debt” under IRS guidelines. One of the criteria that must be met is the intention, at the time the loan was made, was that it was to be paid back, and was not considered a gift.
If you are an educator who meets the following criteria:
1.)You are a Kindergarten through grade 12: Teacher; Instructor; Counselor; Principal; Aide
2.)You work full-time in an elementary or secondary school ,
You can deduct unreimbursed expenses you paid for books, supplies, equipment and supplemental materials that you use in the classroom up to a maximum of $250.
Charitable deductions are often overlooked by those who don’t itemize, use an accountant or tax preparation software. The cost of supplies you use in volunteering for a charitable cause or mileage incurred while volunteering, is deductible at the mileage rate set by the IRS for the tax year.
The costs of preparing your 2006 tax return is a legitimate deduction for 2007. Save your receipt from this year from your tax preparer or for the tax preparation software you purchase.
Refinancing points, if you had to pay any, when you refinanced your home in 2007.
Gambling losses are deductible to the extent you claim winnings from gambling. Save all those lottery scratch offs cards, just in case you DO win a jackpot. The losing tickets can help offset the taxes you have to pay on your winnings.
Military Reservists are allowed to deduct the travel expenses they incur to report for their reserve duty.
Itemized Deductions
Itemized deductions are listed on the IRS Schedule A, which is filed along with a form 1040. On the schedule A, one will find deductions such as mortgage interest, health care expenses that total more than 7.5% of your adjusted gross income, sole proprietorship expenses, state, local, real estate, property and other taxes paid out
Child Care Tax Credit – if you have one or more dependent children for whom you pay child care expenses while you work or attend school full-time, you may claim up to $6000 per year in Child care expenses. This is then compared with your income level to calculate a tax credit, which is worth even more than an income deduction in reducing your total tax burden.
Information about other personal tax credits or alternative tax can be found on the IRS web site or in Publication 17, Your Federal Income Tax.
This article should NOT be considered a comprehensive guide to completing your tax forms. Please consult the web site www.irs.gov or a tax professional for more details or further questions.
