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, 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