Money Management

When you overlook tax deductions, you overlook tax-savings opportunities. The New York State Society of CPAs explains that while taxpayers are generally familiar with common deductions, such as mortgage interest and medical expenses, they can fail to claim others. Here is a rundown of tax deductible expenses for you to keep in mind as you prepare your 2006 tax return.

Charitable contributions – Most people know that charitable contributions of cash can be deducted as an itemized deduction. But not everyone realizes that you can deduct the non-cash donations, such as used clothing, furniture, and household goods. The deductible amount is based on the item’s fair market value.

Student loan interest – Interest paid on student loans is deductible as an adjustment to gross income – up to $2,500 per year for as many years as it takes to repay the loan. This deduction is subject to a phaseout depending on your adjusted gross income.

IRA CONTRIBUTIONS – Contributions to a traditional IRA might be deductible, depending on your age, total income, and whether you are covered by a retirement plan through your employer.

Health insurance for self-employed WORKERS – Premiums you pay to cover yourself and your family are 100 percent deductible as an adjustment to gross income.

EARLY WITHDRAWAL PENALTY – If you incurred a penalty as the result of an early withdrawal from a certificate of deposit or other type of time deposit savings account, the amount of the penalty is deductible as an adjustment to gross income.

Social Security Taxes for the Self-Employed – In computing your adjusted gross income, you can deduct up to one half of self-employment taxes paid during 2006.

Home equity loan interest – The IRS permits you to deduct interest payments on up to $100,000 of home equity loan debt.

Military reservists – Reservists who serve more than 100 miles from home and stay overnight are eligible to deduct non-reimbursed travel expenses.

Alimony – Divorced taxpayers may write off alimony expenses as an adjustment to gross income, but not child support.

There are a number of deductible expenses that fall into the category of miscellaneous itemized deductions. These expenses are deductible to the extent that their total exceeds 2 percent of your adjusted gross income. The most common are listed below.

UNREIMBURSED Employee business expenses – This category includes business expenses you incur in connection with your job, such as dues paid to a union or professional society, business-related travel, courses you take to improve your job skills, professional books and journals, and work clothes and uniforms.

Job search expenses – The money you spend looking for a job is deductible as long as you’re looking for a job in your current line of work. You may deduct the cost of travel (only if the trip relates primarily to seeking a new job), resume preparation, postage, and telephone calls – even if you don’t get the job.

Investment expenses – This category of miscellaneous itemized deductions includes investment fees, safe deposit box rental, subscriptions to investment publications and other expenses incurred in managing your investments.

TAX PREPARATION FEES – You can claim a deduction for fees you pay to a CPA or other tax preparer, as well as expenses paid for tax preparation software, tax publications, and electronic filing.

A CPA can help you determine if you have identified all of the deductions to which you are entitled.

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PUBLIC SERVICE ANNOUNCEMENT

DON’T OVERLOOK VALUABLE TAX DEDUCTIONS

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Before you sign off on your 2006 tax return, be sure you take the time to check your eligibility for deducting certain expenses. The The New York State Society of CPAs points out that many taxpayers, especially those who rush to complete their tax returns, overlook valuable deductions that can offset their taxable income. For example, interest paid on student loans, certain IRA contributions and even alimony payments may be deductible. In addition, miscellaneous itemized expenses are deductible to the extent that their total exceeds 2 percent of your gross income. These include certain unreimbursed employee business expenses, investment related expenses and certain tax preparation fees. To determine your eligibility to claim these and other tax deductions, contact your CPA.

DON’T MISS THESE VALUABLE TAX DEDUCTIONS