Tax Deductions for the Coming Income Year

File taxes online

What are likely to be the most common deductions which people can make for the coming year?

Surprisingly, the most common mistake that people make with their taxes is to forget to enter a Social Security number, but is there a possibility that you have made a mistake of overpayment in your taxes which is going to cost you? Being aware of you rightful entitlements can make a big difference. The IRS estimates that approximately 126 million itemized deductions are claimed by American taxpayers every year amounting to $1,500,000,000,000 in deductions. Its only fair that you get your rightful entitlements. For this reason, we have complied some tips to help you with filing your tax return that might help you be aware of what you can claim. Naturally, this is not a substitute for professional advice.

1. State sales taxes.

You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income-tax states, the income-tax deduction is a better deal.

2. Reinvested dividends.

If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares.

3. Out-of-pocket charitable contributions.

It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good works.

4. Student loan interest paid by Mom and Dad.

If the parents pay back their child’s student loan, IRS treats it as though the money was given to their child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.

5. Moving expense to take first job.

Here’s an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 19 cents per mile for moves during the first six months of 2008 and 27 center per mile for driving after June 30, plus parking fees and tolls for driving your own vehicle.

6. Military reservists travel expenses.

If you are a member of the National Guard or military reserve, you may deserve a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus 50.5 cents per mile for qualifying driving during the first six months of the year and 58.5 cents per mile for driving after June 30, plus any parking fees or tolls for driving your own car. You get this deduction regardless of whether you itemize.

7. Child-care credit.

A credit is so much better than a deduction: It reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.

8. Estate tax on income in respect of a decedent.

This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.

9. State tax you paid last spring.

Did you owe tax when you filed your 2007 state tax return in the spring of 2008? Then remember to include that amount with your state-tax deduction on your 2008 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.

10. Refinancing points.

When you buy a house, you get to deduct points paid to get your mortgage in one fell swoop. When you refinance a mortgage, though, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30 year mortgage — that’s $33 a year for each $1,000 of points you paid. Not much, maybe, but don’t throw it away.

11. Jury pay paid to employer.

Some people still receive their full salary whilst on jury duty. You’ve always had a right to deduct the amount.

SO there you have, some tips for getting on top of your tax return and making sure you only pay what you must.

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