What are the Commonly Overlooked Deductions?

Medical Expenses

Medical expenses that you pay during the tax year for yourself, your spouse, and your dependents are deductible to the extent the total exceeds 7.5% of your adjusted gross income.  This limitation can be hard to reach if you claim only medical insurance premiums and the co-pay on your kid’s doctors’ visits.  Keep these potential deductions in mind as you tally up this year’s medical expenses:

·          For your home: capital expenditures for home improvements and additions (such as swimming pools, saunas, Jacuzzis, elevators) that are added primarily for medical care qualify for the medical expense deduction to the extent that the cost exceeds any increase in the value of your property due to the improvement.

·          For your children: orthodontia; remedial reading and language training classes; lead paint removal.

·          For you and your spouse: Lamaze or other childbirth preparation classes (mother only); contacts and eyeglasses; prescription contraceptives & permanent sterilization; health club dues (if prescribed by a physician for medical purposes); massages (if prescribed by a physician); mileage for trips to medical appointments.

·          For your aging parents: If you or your spouse has a parent that qualifies as a dependent, you can deduct: hearing aids; domestic aid (provided by a nurse); prepaid lifetime medical care paid to a retirement home; special mattresses (prescribed by a physician); certain nursing home costs.

To maximize your deduction, try to bunch your medical expensed into one year to exceed the 7.5% limit.  For example, schedule costly elective medical and dental treatments to be performed and billed in the same tax year.

Taxes Paid

Many of the taxes that you pay such as real estate taxes for your home, state and local taxes, and auto registration fees are deductible as itemized deductions on your return.  Do not forget these:

·          Property taxes paid on boats, motor homes, trailers, and other personal property.

·          Real estate taxes paid on investment property and vacation homes.

·          Real estate taxes paid through escrow in association with the purchase or sale of your residence or investment property.

·          Employee contributions to a state disability fund.

·          Foreign income taxes paid not taken as a credit.

Interest Expense

Although in recent years Congress has made the tax laws regarding interest deductions more strict, much of the interest that you pay during the year is still deductible.  For interest paid to be deductible, you must be legally responsible for the underlying debt and the debt must result form a valid debtor-creditor relationship.  While gathering your home mortgage interest numbers, dig a little deeper to get this info:

·          Interest paid on margin loans

·          Prepayment penalties and late fees related to your mortgage

·          “Points” (prepaid interest) on home purchases and refinances

·          Seller-paid points on the purchase of a home

Since personal interest paid on credit cards and other unsecured loans is not deductible, it may be wise to make that interest deductible by paying off that debt with a home-equity loan.  Interest on home-equity loans of up to $100,000 is generally deductible on your return.

Miscellaneous Expenses

Miscellaneous itemized deductions such as unreimbursed employee business expenses and tax preparation fees are deductible to the extent that the total of these expenses is more than 2% of your adjusted gross income.  Here’s a few more to add to the list:

·          Education expenses: You may be able to deduct expenses that you paid in connection with getting an education.  These expenses are generally deductible to the extent required by law or your employer or needed to maintain or improve your skills.  Examples of deductible education expenses are tuition; books; lab fees’ supplies; and dues paid to professional societies.  Certain travel & transportation costs may also be deductible.

·          Job-hunting costs: You can deduct certain expenses you incur while looking for a new job in your present occupation, even if you do not get a new job.  Consider some of these job-hunting expenses: resumes, phone calls, travel & transportation costs, lunches with others regarding possible job referrals; office supplies; and employment and outplacement agency fees.

·          Investment expenses: Investment expenses are any expenses that you incur as you manage your investments.  These expenses include professional fees paid related to investment activities; subscriptions to investment-oriented publications; fees paid to your Internet service provider related to tracking your investments; and IRA custodian fees (if billed separately).

·          Protective clothing used on the job

·          Appraisal fees for certain charitable contributions & casualty losses

·          Safe deposit fees