You have a duty to pay taxes, but you don?t have a duty to pay more than you owe. And you only owe the amount that shows up on line 76 of your 1040?after you take all the deductions (and credits) you?re allowed by law.
What follows is a list of deductions you can?t afford to overlook.
But know this: All of them are subject to certain rules and limits not discussed here and many of them are worth nothing to you if your total itemized deductions don?t exceed $11,900 (for those married and filing jointly); $5,950 (for those filing separately); or $8,700 (for those filing as head of household).
Casualty and Theft Losses
Yes, it hurts when you lose a favorite necklace, or when a burglar palms your coin collection. It hurts even more if you lose everything in a Sandy-like natural disaster.
You can take some of the sting out of those losses by deducting them. You?ll need to document your losses, and some of the rules are tricky, but where there?s a loss, there?s generally a way to deduct it.
Federal Estate Tax on Income in Respect of a Decedent
You know that income from the IRA or pension you inherited from your dad (or mom or grandmother)? That?s income in respect of a decedent.
And because his estate may have paid estate tax on it, you may be able to deduct that tax on your income tax return. Go figure.
Family Planning and Fertility Treatments
Did you take a pregnancy test at home? Deduct the cost of the kit. Did you purchase birth control pills prescribed by your doctor? Deduct that, too.
What about purchasing a breast pump, or paying for fertility treatments or a vasectomy? You guessed it ? that?s all deductible, too.
IRA Administrative Fees
If you pay your IRA fees out of your IRA account, you lose two ways: The account has less money to grow tax-deferred, and the fee isn?t deductible.
Pay the fee out of pocket and you?ve solved both of those problems.
Student Loan Interest Paid by Your Parents
So here?s the deal: When your parents pay your student loans, the IRS treats the interest they pay as a gift to you.
Thus, since it?s therefore really your money that paid the interest, you get to deduct it?if your parents don?t claim you as a dependent on their income tax return.
It gets better: You don?t even have to itemize to take this deduction!
Interest, Fees, and Expenses You Incur When You Invest
It takes money to make money. Often, much of the former is deductible.
For example, investment and custodial fees are generally deductible, as is the interest you pay on the money you borrow to make those investments.?
State Sales Tax or State Income Tax
When Congress stopped just short of the Fiscal Cliff on January 1, 2013, it reinstated your right to deduct sales tax you paid in 2012. If your state has both a state income and a state sales tax, you get to choose which tax to deduct.
Didn?t keep all your receipts? No problem. You can use the IRS?s handy sales tax deduction calculator.
Out-of-Pocket Charitable Deductions
Bill Clinton famously deducted his underwear. You may want to follow your former leader (but not too closely?the IRS is watching after all).
Add up the cost of the ingredients for that pie you baked for the charity auction, the miles you drove to do charity work, and similar unreimbursed expenses related to your work for your church or other qualified charity, and you may qualify for a sizeable deduction.
Points Paid on the Purchase of Your Home
This one is tricky, with all sorts of rules, but the essence is this: Sellers who pay points can?t deduct them, but the points do reduce the amount the seller realizes on the sale.
Buyers can deduct points?even seller-paid points?maybe in the year paid, possibly pro-rated over the life of the loan. The dickens is in the many details.
Sin Tax Deductions
If the stress from preparing your taxes has driven you to drink or smoke, or if you?re off to Vegas to see if you can win enough to pay your taxes, know this: You can deduct the cost of drug or alcohol treatment and the cost of programs that help you stop smoking.
You can even deduct your gambling losses?to the extent of your winnings.
Gregory Taggart is a former bank attorney who now works as a financial writer. He has written for various Bloomberg publications, Institutional Investor, Bankrate.com, among many other publications.
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Source: http://www.mint.com/blog/planning/10-commonly-overlooked-tax-deductions-0213/
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