Make sure you deduct everything that you are allowed
THE most common question I get from my tax clients is, "How can I lower the amount of taxes I pay each year?"
One of the easiest ways may be to itemize your deductions. Most individuals know about common deductions, such as mortgage interest expense and state income taxes paid. But, for those who choose to itemize their deductions, the following deductions are often overlooked or misunderstood.
» Medical expenses:
Medical expenses in excess of 7.5 percent of your adjusted gross income -- paid for you, your spouse or your dependents --are deductible.
Dependents include qualifying children and qualifying relatives: grown children, siblings and their children, parents, in-laws, ancestors and their siblings.
Many people are aware that you are able to deduct prescriptions and doctors' costs. However, you can also deduct other expenses, such as acupuncture treatments, chiropractors, dental exams and treatment, contacts and eye glasses, and therapy received as a medical treatment?
Premiums paid for qualified long-term care insurance that provides only coverage of qualified long-term services are also deductible, subject to limitations based on your age.
Medical expenses that cannot be deducted include funeral expenses, health club dues, illegal operations and treatments, medicine and drugs from other countries and unnecessary cosmetic surgery.
» Miscellaneous deductions:
Miscellaneous deductions in excess of 2 percent of your adjusted gross income are also deductible. These include unreimbursed business expenses, including union and professional dues, business license fees, job-search expenses in your present occupation, costs of uniforms, gifts, travel, and 50 percent of meals and entertainment expenses.
Other deductions in this category include tax planning and preparation fees, safe deposit box rental expenses and IRA and investment fees.
» Casualty loss:
Your losses as a result of any damages to your property may be a deductible casualty, if it is from an identifiable event that is sudden, unexpected and unusual (such as a car accident, fire, earthquake, hurricane, flood or vandalism).
While there are special forms to complete and limitations on the losses, you should do your homework and see if your casualty losses are worth claiming.
It should be noted that itemizing deductions may not be for every individual taxpayer.
You should not itemize deductions if your deductions do not (in total) exceed the standard deduction each year. For 2006, the standard deduction is $10,300 for married couples filing jointly, $5,150 for single filers and married couples filing separately, and $7,550 for taxpayers filing as head of household.
While figuring out what expenses to deduct on your income tax return does require some organization and planning, it does not need to be a time-consuming process. It can be as easy as reviewing your check register at the end of the year or keeping your receipts rather than throwing them away. Capitalizing on allowable deductions is one way to save tax dollars.
Doreen Griffith is Honolulu managing partner for Grant Thornton LLP. She can be reached at Doreen.Griffith@gt.com