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How many times have you done your taxes, and a week or a month later
realized you forgot a deduction? The tax law is very complicated, so
it’s easy to miss a deduction or two. In my experience, these are the
top 5 missed deductions.
1. Non-Cash Donations
Did
you clean out your closets this year? Chances are you donated those
items to Goodwill or a similar non-profit organization. The value of
donated items (clothing, furniture, etc.) is deductible. You will need
to get a written receipt and assign a value to these items, but the tax
savings are worth the effort.
2. Points on Refinancing
With
interest rates so low the past few years, there have been a
record-number of houses refinanced. If you refinanced, you may have
paid points to get a lower interest rate. These points are deductible
over the life of the new loan. In addition, if you incurred points on
an old refinancing, any unamortized points are deductible in the year
of the new refinancing.
3. Educator Expenses
If
you’re a qualified educator (teacher, aide, instructor or principal),
you can deduct up to $250 for materials you bought for the classroom.
Qualified expenses include books, supplies, and computer equipment.
This law is set to expire in 2006, so take advantage of it now if you
qualify.
4. Investment and Tax Expenses
Expenses for
tax planning and investment advice are deductible as a miscellaneous
deduction, subject to the 2% Adjusted Gross Income (AGI) limitation.
Expenses that qualify include tax preparation fees, safe deposit box
fees, fees paid to investment advisors, legal and accounting fees
related to tax planning, broker and IRA fees paid directly, investment
publications, and more. Many people assume that they won’t have enough
miscellaneous expenses to exceed the 2% AGI floor, but all of these
expenses combined can be substantial, especially if you have
unreimbursed employee expenses to add to these expenses.
5. College Savings or 529 Plan Contributions
Depending
on which state you live in, contributions to 529 college savings plans
may be deductible on your state income tax return. Because this
deduction is only available on the state return (no deduction available
on your federal return for 529 contributions), many people fail to
include this deduction on their state tax return.
Kristine A.
McKinley, CFP, CPA, and founder of Beacon Financial Advisors, offers
financial and tax planning on an hourly, fee-only basis. To sign up for
free financial planning tips, worksheets, checklists and more, visit
http://www.beacon-advisor.com.
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