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.
Article by:
Kristine A. McKinley, CFP, CPA, and founder of
Beacon Financial Advisors, teaches individuals and families how
to invest and plan for retirement, college, and other financial
goals. Kristine offers financial and tax planning on an hourly,
fee-only basis. To sign up for free financial planning tips, worksheets,
checklists and more, visit www.beacon-advisor.com
