Don't Miss These Valuable Tax Deductions

March 19, 2007

When you overlook tax deductions, you overlook tax-savings opportunities. The Connecticut Society of CPAs explains that while taxpayers are generally familiar with common deductions, such as mortgage interest and medical expenses, they can fail to claim others. Here is a rundown of tax deductible expenses for you to keep in mind as you prepare your 2006 tax return.

Charitable Contributions

Most people know that charitable contributions of cash can be deducted as an itemized deduction. But not everyone realizes that you can deduct the non-cash donations, such as used clothing, furniture, and household goods. The deductible amount is based on the item’s fair market value.

Student Loan Interest

Interest paid on student loans is deductible as an adjustment to gross income – up to $2,500 per year for as many years as it takes to repay the loan. This deduction is subject to a phase-out depending on your adjusted gross income.

IRA Contributions

Contributions to a traditional IRA might be deductible, depending on your age, total income, and whether you are covered by a retirement plan through your employer.

Health Insurance for Self-Employed Workers

Premiums you pay to cover yourself and your family are 100 percent deductible as an adjustment to gross income.

Early Withdrawal Penalties

If you incurred a penalty as the result of an early withdrawal from a certificate of deposit or other type of time deposit savings account, the amount of the penalty is deductible as an adjustment to gross income.

Social Security Taxes for the Self-Employed

In computing your adjusted gross income, you can deduct up to one half of self-employment taxes paid during 2006.

Home Equity Loan Interest

The IRS permits you to deduct interest payments on up to $100,000 of home equity loan debt.

Military Reservists

Reservists who serve more than 100 miles from home and stay overnight are eligible to deduct unreimbursed travel expenses.

Alimony

Divorced taxpayers may write off alimony expenses as an adjustment to gross income, but not child support.

Miscellaneous Itemized Deductions

There are a number of deductible expenses that fall into the category of miscellaneous itemized deductions. These expenses are deductible to the extent that their total exceeds 2 percent of your adjusted gross income. The most common are listed below.

Unreimbursed Employee Business Expenses

This category includes business expenses you incur in connection with your job, such as dues paid to a union or professional society, business-related travel, courses you take to improve your job skills, professional books and journals, and work clothes and uniforms.

Job Search Expenses

The money you spend looking for a job is deductible as long as you’re looking for a job in your current line of work. You may deduct the cost of travel (only if the trip relates primarily to seeking a new job), resume preparation, postage, and telephone calls – even if you don’t get the job.

Investment Expenses

This category of miscellaneous itemized deductions includes investment fees, safe deposit box rental, subscriptions to investment publications and other expenses incurred in managing your investments.

Tax Preparation Fees

You can claim a deduction for fees you pay to a CPA or other tax preparer, as well as expenses paid for tax preparation software, tax publications, and electronic filing.

A CPA can help you determine if you have identified all of the deductions to which you are entitled.

Questions? Contact Mark Zampino at 860-258-4800, ext. 212 or markz@cscpa.org.