Tax breaks, credits abound
You could fill a fat book with often-overlooked tax breaks — in fact, many such guides jockey for shelf space at bookstores throughout the tax season. Here are dozens of deductions, credits and other tax-saving ideas that could be worth exploring more deeply.
EMPLOYEES• Excess payroll deductions for state disability insurance if you held two or more jobs• Job-hunting expenses if you sought work in your current occupation• Labor union dues• Education expenses required by law or your employer• Moving expenses• Protective clothing required at work• Teachers may deduct up to $250 spent on books and classroom supplies• Transit passes and parking fringe benefits may be tax-free perks, not income• Cell phones used for the convenience of the employer.
FAMILY• The child tax credit is $1,000 for kids 16 and under• Up to $4,000 in college tuition and fees under the higher education tax deduction• Up to $1,650 of college tuition and fees under the Hope credit, or $2,000 under the lifetime learning credit• Working single parents and families in which both parents work are eligible for the child and dependent care credit worth up to $2,100• Parents can claim a credit for up to $11,390 of adoption expenses• Appraisal fees for charitable contributions and casualty losses• Appreciation on goods donated to a charity• Legal fees stemming from collecting or obtaining alimony• The earned income tax credit is worth up to $4,716• Interest payments on student loans can be deducted from gross income• Alimony payments• Couples can file a joint return for the full year even if they wed Dec. 31, 2007.
INVESTORS• The savers credit is worth up to $1,000 for low-income taxpayers who stashed at least $2,000 in an IRA or retirement account• Fees for a safe-deposit box that holds stock or bond certificates• Investment advisory fees• Write-off securities that became worthless in 2007• Up to $3,000 of capital losses that exceed your gains• Up to $4,000 in contributions to an IRA and $15,500 to a 401(k), plus more for "catch-up" contributions if you're 50 or older• Leftover Alternative Minimum Tax credit triggered by misplayed stock options• Choose between a credit or a deduction for foreign taxes withheld by mutual funds that earn dividends outside the United States• Interest on savings bonds may be tax-exempt if spent on certain education expenses.
• Contact lenses, glasses, hearing aides, laboratory work and some hospital services• Doctor-prescribed weight-loss programs and stop-smoking classes• Prescription contraceptives, a vasectomy or, in the event either failed, childbirth classes• Certain long-term care insurance premiums• Up to $5,650 in contributions to a heath savings account• Private school tuition for deaf, blind or dyslexic childrenREAL ESTATE• Certain mortgage insurance premiums• Commissions and closing costs from the sale of a property• Mortgage prepayment penalties and late fees• Points on a mortgage and certain refinancings• Points paid by the seller of a home• Real estate taxes resulting from the sale or purchase of a property• A legitimate home-office allows you to deduct mortgage interest, real estate taxes, utility bills and other expenses, and potentially the cost of driving to work sites.SMALL BUSINESS• The self-employed can deduct 50 percent of self-employment tax and health insurance premiums• Self-employed taxpayers with children may qualify for the employer child care contribution credit if they have no employees• Charitable contributions sometimes can be written off as advertising• Some travel bills can be deducted if you spent part of a business trip on vacation• Life insurance, retirement plan benefits, transportation perks and other fringe benefits can be deductible if you hired your spouse.TAXPAYERS• Tax-preparation fees and audit representation• A deduction or credit for income taxes imposed by a foreign country• You may deduct state and local sales tax on your federal return if you forgo deductions for state and local income taxes• You may be able to claim a credit on your state return if you also paid income tax in another state in 2007• An alternative minimum tax credit left over from a prior year could reduce your regular tax this year• A portion of vehicle license fees.OTHER• Mileage and out-of-pocket expenses related to charitable activities• Gambling losses that are offset by winnings• Theft or embezzlement losses• Attorney fees and costs in discrimination lawsuits can be deducted from gross income.Source: "J.K. Lasser's Your Income Tax 2008," "The Ernst & Young Tax Guide 2008" and Spidell Publishing