Around the Washington area, people are scrambling to finish -- or, in some cases, begin -- their taxes. But in your rush to beat the April 15 deadline, don't overlook all the tax deductions that you're entitled to take.
In their haste, American taxpayers miss out on millions of dollars by taking the standard deduction rather than itemizing. In 2002, the General Accounting Office, Congress's investigative arm, found that taxpayers who would have benefited by itemizing, but didn't, sacrificed $945 million, or about $438 per taxpayer on average.
Now, I know that doing taxes is about as much fun as getting your teeth cleaned. But you have to do them anyway, so you might as well get the money coming to you.
With that in mind, here are some of the top missed deductions.
1) Refinance Points
Everyone knows that the mortgage interest on your home can be deducted. But homeowners often miss a few other gems. For instance, while refinance loan points must be deducted over the loan's life, homeowners who refinance for a second time can fully deduct the remaining points of the first loan.
Also, those who used their new loan to remodel may be able to deduct those new points immediately. If the proceeds of your new loan are used to improve your home, then you can deduct those points.
2) Boost Your Miscellaneous
Miscellaneous itemized and medical deductions are two of the more difficult categories to claim, given the minimum thresholds taxpayers must meet.
Taxpayers' miscellaneous itemized deductions must exceed two percent of adjusted gross income before deductions kick in. Still, several little-known expenses can help you jump through that hoop:
- Investment-related costs. Some magazine and investment newsletter subscriptions, account-management fees, IRA trustee fees and safe-deposit box costs are often deductible, as are tax-preparation costs, including tax software, electronic-filing fees and fees paid to a professional tax preparer.
- Job-seeking expenses. Resume printing, travel, telephone calls and networking expenses for a job in your field count as deductible. Remember, you can still take these deductions even if you don't find a job. There must be a direct connection between the expense and the job hunt.
- Legal fees for matters involving taxable income. For example, if you win a lawsuit against your employer, the award money is taxable income to you, so the legal fees would be deductible.
Self-employed people aren't the only workers able to take job-related deductions. The key for employees is not claiming any expense that your employer would have reimbursed had you only filed an expense report.
For instance, continuing education for your job is deductible. However, be careful, the training can't be training for a new job. For example, if you're accountant -- and pray that you're not -- and you take a law school course, the tuition and fees aren't deductible because the course could be used to help you get a job in the legal profession.
Union and professional association dues are deductible, as is mileage for business trips (other than commuting).
If you use your cell phone for work and pleasure, the portion related to work -- including the base charges, long distance or roaming charges, and the cell phone purchase -- may be deductible.
4) State-tax deductions
State and local taxes levied on personal property, such as car or boat registration fees, are often deductible on your federal form.
Remember, though, that the tax must be assessed annually and based on the value of the property, like in Virginia. That's not true for, say, car registration fees in every state.
5) Brainy Deductions
Like it or not, Washington draws brainy, over-educated people like moths to a fire. (The Economist magazine once called the city "nerd-friendly.") So any tax deduction that helps students, past and present, is worth its weight in gold around here.
For all of you with student loans -- and that's just about everybody -- you can deduct up to $2,500 of the interest on those loans if your income is less than $50,000 on a single return. (This deduction gradually disappears as income rises to $65,000.)
If you've gone back to school, even for one or two classes, look into the Lifetime Learning Credit. The Lifetime credit allows you to knock up to $2,000 off your tax bill.
To compute the Lifetime credit, you can take 20 percent of tuition and fees. So if you spend $10,000, you would reach the maximum allowed credit of $2,000. But be aware, you can't qualify if you are single with an income over $51,000.
If you don't qualify for the Lifetime credit, you may still be able to cut your tax bill in another way. The government allows you to deduct up to $3,000 in tuition and fees. However, you can't use the deduction if your adjusted gross income is over $130,000 for couples or $65,000 for singles. Doing your taxes may not be fun, but, if you know the rules, it can be profitable.
Mark Helm is a personal finance writer and financial planner. He can be reached at 703-501-8531 or HelmFinancial@aol.com.