The dos and don'ts of tax deductions
There are many tax deductions that people miss when they are preparing their taxes. Here are five tax deductions you do not want to miss:
1. Non-cash contributions (charity):
Items such as clothes, household items, furniture, and other things that you have donated to a charitable organization are tax deductible. Beginning Jan. 1, 2007, the law now requires a receipt or other written confirmation for all charitable donations. So make sure you get a receipt. If you have already made a donation and did not get a receipt, you can still take the deduction, but in an audit you may not be able to prove it. Bottom line is no receipt means no deduction if you get audited. Get that receipt every time you make a donation!
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2. New points on refinancing:
If you have refinanced your home, any points you paid to refinance can be deducted on a monthly basis over the life of the new loan. For example; on June 1, 2006, you refinanced your mortgage for a 20 year term, out of 240 months 7 will have passed after Dec. 31. Lets say you paid $2,400 in points, this would allow you to write off $70.00 for the year 2006. In the year 2007 and each year after that you can write off $120.00 until the points have been deducted in full.
3. Old points on refinancing:
In the year of a new refinancing all unamortized points on an old refinancing can be deducted. For example; on June 1, 2005 you refinanced and paid $2,400 in points, and then on June 1, 2006 you refinanced again. You would be able to deduct all the remaining points on the 2004 loan. This would mean you could deduct $2,280 plus $50.00 for the months of January through May 2006. If you were to refinance the 2006 loan in 2007, you would still be able to write off the remaining balance on your 2006 points.
4. Health insurance premiums:
You may be able to write off any of the health insurance premium you paid. You will need to add these to your medical expense amount and before you can get any tax benefit, medical expenses have to exceed 7.5% of your adjusted gross income. If you are self-employed and are not covered by any other employer-paid health insurance plan, you can deduct 100% of your health insurance premiums above the line. This means you do not have to exceed the 7.5%, you will not even have to itemize.
5. Educator expenses:
If you are an educator, you may be able to get an above the line deduction of up to $250 for materials you purchased. You must be a qualified educator, which is a kindergarten through grade twelve teacher, an aide, an instructor or a principal to get this deduction. Types of materials include books, supplies and computer equipment.
Tax preparation Don'ts:
1. Don't forget to report unemployment insurance benefits:
You must report any state or federal unemployment insurance benefits you received during the tax year you are filing for. This type of benefit is considered taxable income so you must report it.
2. Don't report worker's compensation insurance benefits as income:
There are several types of income that are not considered taxable income. This includes worker's compensation, child support, military allowances, veteran's benefits, welfare benefits and cash rebates from a purchase of a car.
Every year your Federal individual income tax return is due on April 15, if your tax year ends December 31st. The tax return envelope must be properly addressed and postmarked no later than April 15th to be considered on time.
