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Last-Minute Help for Tax Procrastinators
Don’t Overlook These Often-Missed Deductions in Your Haste to File on Time
By Elizabeth Lewin
Getting ready to do your 2002 tax return? Every year, the Internal Revenue Service compiles a list of the most overlooked tax deductions. Some of the following might apply to you, saving you hundreds of dollars or even more.
$ Professional/investment fees. Did you know that your fee to your accountant or tax preparer is deductible? So are fees for a safe-deposit box to hold stock certificates and bonds, professional or legal fees associated with production of investment income, custodial fees for Keoghs and IRAs, if paid separately, and the cost of investment-related publications, such as magazines and newspapers. Consult IRS publication No. 592 for more information.
$
Medical expenses.
Medical expenses are deductible, if they exceed 7.5 percent of your
adjusted gross income. This probably won’t affect you if you have
corporate coverage and get reimbursed for most of your medical expenses.
But consider those items that are not reimbursed: contact lens;
eyeglasses; hearing aids; contraceptives, if purchased with a
prescription; orthopedic shoes; a seeing-eye dog; lead removal; even wigs,
if they are essential for medical reasons. Special equipment for the
handicapped is also deductible. If you are using a wheel chair, the cost
of remodeling the bathroom and installing ramps to accommodate your needs
is deductible. Air conditioning might also be deductible,
as long as it’s prescribed by a physician.
Deductible, medical-related travel expenses include more than just your travel to the doctor. They can include the cost of driving to Alcoholics Anonymous meetings, expenses to visit an ill child if your presence is needed for his or her recovery, and air travel with a spouse or child who is unable to travel alone for medical purposes. The deduction for driving is 13 cents per mile, plus tolls and parking. You can also deduct medical-related hotel bills at the rate of $50 per day per person. And if you are self-employed, a portion of your health insurance premiums is deductible. Keep very careful records. Consult IRS publication No. 502 for more information.
$ Business or job-related expenses. Don’t forget cleaning and laundering expenses incurred while traveling for business purposes, and education expenses to the extent required by law or needed to maintain and improve your skills. You must be employed and the courses must be directly related to what you are now doing. Expenses associated with looking for a new job in your present occupation are also deductible. This includes resume preparation and fees for employment outplacement agencies. You can deduct depreciation of home computers and cellular phones, if used for the convenience of your employer and required as a condition of your employment, as well as moving expenses and commission on the sale of a home, if your move is job-related. Labor union dues and uniforms not suitable as ordinary wearing apparel are deductible. And remember that, if you’re self-employed, you can deduct half of your self-employment (Social Security) tax. Consult IRS publication No. 508 for more information.
$ Casualty and theft losses. You can usually deduct losses that are not reimbursed by insurance. However, you are responsible for the first $100 and the loss must exceed your adjusted gross income by 10 percent. Overlooked losses that might be deductible: Damage or loss of trees and shrubs due to blizzard or fire; embezzled losses (think of identity theft); damage by lightening; and Government-ordered demolition of your home after a natural disaster. Consult IRS publication No. 547 for more information.
$ Charity deductions. Missed bets in this category include: appreciation on property donated to charity; contributions to public parks, such as benches, playground equipment or works of art; cost of a non-dependent student living with you; out-of-pocket expenses for charitable activities; mileage driven for charitable purposes.
$ Other commonly overlooked deductions. Sometimes the most obvious deductions get missed. These include: student-loan interest, mortgage prepayment penalties, penalties for early withdrawal of savings, points paid on an original mortgage, some refinancing, and state personal property taxes on cars and boats. There is also a higher standard deduction that applies to those over 65, who are legally blind and don’t itemize.
Do You Know the DifferenceBetween a Deduction and a Credit?It’s simple: A deduction reduces income that is subject to taxes. A credit is worth more, because it is a dollar-for-dollar reduction of your tax. Three credits that might be available to you are:
$$
The Child-Care Credit.
You qualify for this credit if you pay child-care expenses for a dependent
under age 13, in order to go to work. The credit is a percentage of the
qualifying expense.
$$ The Earned Income Tax Credit. This credit benefits people in lower income brackets. The maximum credit is $3,556 for those earning between $8,900 to $11,610. And it phases out when income is more than $11,610.
$$ The Hope Scholarship Credit. This education credit applies to certain types of education expenses that you or your dependent incur during the first two years of college.
$$ The Lifetime Learning Credit. This one is targeted at adults who want to go back to school, change careers, or take a few courses to upgrade their skills.
It is a good idea to check with an accountant if you think you qualify for any of these. The IRS is tough on medical deductions and property and casualty losses. The most important thing to remember is to keep good records. If you haven’t retained the appropriate receipts and documents to be able to claim any of the above this year, then get organized—label some file folders and set up a system—so that the process of collecting all relevant receipts and papers becomes automatic. That way, you’ll have what you need to claim every deduction you can get this time next year! __________________________________
Financial planner Elizabeth Lewin is the co-author of “Family Finance” (Dearborn Trade) and a contributing editor to MAKING BREAD. __________________________________
For more information, read “How Low Can I Owe? If You Dread Tax Time, Here’s How You Can Ease—and Even Postpone—the Pain.” |
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