I really don't like to miss things.
So I TiVo my favorite shows, send emails to my phone so I can be at dance class while I'm, uh, working, and became a "premier" credit card holder at Bloomingdale's so I can get the first crack at the sales.
I feel the same way about missing deductions on my tax return, mainly because it's like handing money to the government. I won't do it, and neither should you. So as long as you have supporting documentation, deduct as much as you can.
And below are some of the more esoteric deductions you might have overlooked.
Anything not reimbursed by your insurance company is deductible as a medical expense. Thus, things like prescription drugs, contact lenses, hearing aids, alcoholism and drug abuse treatment programs, lead-paint removal products and orthopedic shoes are just some of your qualifying expenses.
If you are medically considered obese, weight-loss counseling is deductible, but the corresponding food is not. So if you join Jenny Craig, you can deduct the monthly fees for the counseling, but the cost of those prepackaged meals is on your dime.
And forget the boob job. Cosmetic surgery is not deductible.
If you happened to switch jobs during the year and made COBRA payments to continue your healthinsurance for a few months until your new job's insurance plan kicked in, those payments are deductible as medical expenses, too.
Granted, all medical expenses are required to total at least 7.5% of your adjusted gross income to be deductible. So if your AGI was $50,000, only expenses that amount to more than $3,750 are deductible. That may seem like a big number to beat, but those expenses can add up quickly.
Tally the Tiniest
Miscellaneous itemized deductions are limited to 2% of your adjusted gross income. That means only the deductions that exceed 2% of your AGI are deductible on
Schedule A -- Itemized Deductions
. So start tallying, because every little bit helps.
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.
Include 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.
The same goes for job-related expenses that are not reimbursed by your employer. Items like uniforms, newspapers and publications that you read for work, education courses that improve your skills, work calls on your personal cell phone and passport fees for business travel should be included.
If you're a gambler and tend to "give" your money away in Las Vegas or Atlantic City, be sure to deduct all those losses as well. Gambling losses aren't a part of the miscellaneous deductions that are subject to the 2% rule. Report the gambling claims on line 27 of your Schedule A.
But remember, you're required to report all your gambling "wins" too. They go on line 21 of your Form 1040. That includes any money you won from an office pool, lottery tickets or March Madness bets.
But you can only deduct your gambling losses to the extent of your wins. So if you have $10,000 in losses but only $8,000 in gains, you can only report up to $8,000 in losses on Schedule A. Because you can deduct only as much as you win, that means if you win nothing, you can deduct nothing.
Notice that your wins and losses are reported in separate places on your tax return. That's because Uncle Sam doesn't want you to just net them and report the difference. He wants to see the detail.
It's Right in Front of You
Granted, you need to itemize your deductions to take advantage of the above suggestions, butthe following are available to anyone -- whether you itemize or not.
So check out the first page of your Form 1040. "We find that lines 23 to 35 are often the onesmissed," says David Sands, chairman of the New York State Society of CPAs' relations with the IRS committee.
There are a bunch of deductions in that area. For instance:
- If you have to relocate because of a new job, any unreimbursable moving expenses aredeductible on line 26.
- You can deduct up to $2,500 in qualified student loan interest on line 33.
- This is the last year for the tuition and fees deduction. So deduct up to $4,000 of qualifiedhigher education expenses on line 34.
- Thanks to the "hybrid vehicle" deduction, you can deduct up to $2,000 for the purchase ofa qualified hybrid vehicle in 2005, says Jackie Perlman, a senior tax research analyst at H&RBlock. (In 2006, this deduction is replaced by a new tax credit.) For 2005, there's no actual lineitem, so just enter the amount of the deduction on line 36 and write "Clean Fuel" on the line tothe left.
- And for the self-employed folks out there, don't forget that half of your self-employment(Social Security) taxes are deductible, as well as 100% of your health insurance premiums andcontributions to self-employed retirement plans (SEPs, SIMPLEs, etc.).
Finally, if you switched jobs during 2005, you might've had too much Social Security taxwithheld from your paychecks. The 2005 cap was $5,580. When you start with a newcompany, human resources has no idea how much Social Security tax was withheld from your previous job and may start the withholding as if you were at zero. So be sure to check your W-2s. If you had more than $5,580 withheld, you can claim a credit for the overpaid amount on line 67 of your federal Form 1040 whether you itemize or not.
Now this is by no means a comprehensive list of the available deductions, so be sure to pull out a tax preparation book for more suggestions.
Because you don't want to miss a thing.
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback;
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