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Deductions You Shouldn't Skip

Tracy Byrnes

I know you're probably sick of hearing about taxes, but there's just a few more days and then bye-bye tax return. Unless, of course, you put your return on extension, and then it's just bye-bye 'till August.

Either way, a reprieve is near.

And the upside is, April 15 is a Friday, so you'll be done just in time for happy hour.

But in our pursuit to be your consummate advocate, we don't want you to forget anything. Let's go through a few more items that the pros say many people often overlook.

Bonuses on Last Year's Return

Don't forget any carryover items from last year's return. Check your prior-year capital losses and your charitable contributions for these little golden nuggets.

Here's how they can help you now.

As a refresher, to calculate your net capital gain or loss, you must first net your losses against your gains. Once you wipe out your gains, you can only take another $3,000 in losses.

Let's assume in 2003 you had $5,000 in gains and $9,000 in losses. Once you wiped out your gains, you had $4,000 in losses left. But the rules say you can only deduct another $3,000.

What happened to the remaining $1,000? The balance wasn't lost, it was just carried forward to 2004. Remember, Uncle Sam doesn't want you to get too much of a good thing in any given year.

The good news is that now you can treat that $1,000 loss as if you incurred it in this next year. So use it to offset any gains you had in 2004. And even if you don't have any gains this year, you can still use the carryover loss to offset your taxable income, up to $3,000.

If you had a very large capital loss carryover, and you couldn't use it all this year, you can keep carrying it forward until it's gone or until you die.

The same goes for some of your charitable contributions -- the unused portions may be carried forward as well. Why? Because some charitable contributions are limited by the amount of your adjusted gross income. That means, if the contribution exceeds a certain percentage of your AGI, you can't deduct it.

Odds are good you didn't even realize there were limitations on your contributions, mainly because most contributions are limited to 50% of you AGI. So if you earn $100,000, you can't contribute more than $50,000 in one year to, say, your church or the local boy scouts. And because not many people are willing to give away half of their salary, you don't hear much about this rule.

But if you donate capital gains property, your donation can't exceed 20% of your AGI. So in our example, $20,000 would be your limit on capital gains contributions.

If you were feeling philanthropic in 2003 and contributed more than 20%, the unused portion of that donation would've been carried forward, which means you can deduct it now on your 2004 tax return.

Note that excess contributions can be carried forward only for the next five years. Any amount unused after that will be lost.

The tax code can get complicated, so check out the "Carryovers" section of Publication 526 -- Charitable Contributions.

Too Much Social Security

If you switched jobs during 2004, you might've had too much Social Security tax withheld from your paychecks. The 2004 cap was $5,449.80. The problem is, when you start with a new company, HR has no idea how much Social Security tax was withheld from your previous job. As a result, your company just starts withholding as if you were at zero. So be sure to check your W-2s. If you had more than $5,449.80 withheld, you can claim a credit for the overpaid amount on line 66 of your federal Form 1040.

A Healthy Dose of Items

Here are a few more deductions that people frequently forget to include.

If you have a safe deposit box for your investments, you may be able to deduct the cost of the box as a miscellaneous itemized deduction. If you use the box to store taxable income-producing stocks, bonds or investment-related papers and documents, then you can deduct the cost, says the IRS. If you use it to store personal items, like jewelry, or any tax-exempt securities, forget it.

Remember, only the miscellaneous itemized deductions that are greater than 2% of your adjusted gross income are deductible, so every little bit helps.

That's why you should also tally any cell-phone calls that pertain to your investments. If you're constantly on the phone with your broker or adviser, be sure to go through your phone bills and include those calls as part of your miscellaneous itemized deductions, too.

Same goes for subscriptions to professional journals that are not reimbursed by your employer.

Do the same for your medical expenses. Those expenses need to exceed 7.5% of your AGI to be deductible, but again, they can add up quickly. So total all your medical expenses that weren't reimbursed by your health insurance. Include fees for childbirth classes if they are part of your obstetrical care, and the cost of any alcohol and drug treatment centers that you were in last year.

A Worthless Reminder

And finally, if you have shares of worthless securities or stock, and you have documentation to prove they're now nothing more than drawing paper for your kids, then be sure to claim that loss on your tax return.

We wrote about this a few weeks ago, but as a refresher, worthless securities are treated as though they were sold on the last day of the tax year. So report them on Schedule D -- Capital Gains and Losses, either on line 1, if you held the shares for a year or less, or line 8, if you held them longer. In columns (c) and (d), write "Worthless" instead of filling in a date sold or a sale price. Your loss will be the difference between what you originally paid for the shares and zero.

So, don't forget all these esoteric items that will help lower your tax bill. You're entitled to deduct this stuff, so do it!

Hang in there! The end is near!