7 Common Overlooked Tax Areas & Savings
By: Kent Irwin
The Ernst and Young Tax Guide for 2007 listed 50 of the most easily overlooked deductions. You may want to purchase this large book as well as to see publication 529 at IRS.gov http://www.irs.gov/publications/p529/index.html. Also see IRS.gov for a list of highlights and what's new and what's hot at http://www.irs.gov/taxtopics/tc302.html.
Some of these items you are able to deduct as un-reimbursed employee expenses. Remember ' some of these deductions are phased out due to income, circumstance or "floor" limits required. Check with your tax professional to see if these are applicable to you.
1. Be aware of AMT - the Alternative Minimum Tax
The AMT affects more people now than ever, and sneaks up and surprises many people with large tax bills. The alternative minimum tax (AMT) attempts to prevent some who benefit from tax savings (deductions and credits) by making sure they pay a minimum tax.
For middle Americans, the most typical cause of AMT tax is the level or amount of State, Local and Property Tax combined with miscellaneous deductions like unreimbursed employee costs; especially if your household income is over $100,000. According to studies, it's only going to get worse if Congress doesn't intervene! This is the one part of the code not adjusted for inflation since its inception in the 60's. So that's why more and more people are affected to this tax each year!
You can see if the AMT affects you by consulting the AMT worksheet in the Form 1040 instructions entitled "Worksheet to See if You Should Fill in Form 6251 ' Line 45." People with more complex financial situations should probably consult a good accountant to help them calculate what they might owe. For more information go to http://www.irs.gov/taxtopics/tc556.html.
2. Higher Education Expense Deductions and Credits
You may be able deduct $2,000 or $4,000 of qualifying tuition expenses, depending on your income. It applies to expenses for post-high school education for you, your spouse, or your dependents regardless if you had to take out loans to pay for the cost. It even counts for Grandma to pay for grandson's college! Grandma can get the deduction.
The Hope Credit or the Lifetime Learning Credit have stricter income limits than higher education deductions to qualify, but provide greater tax savings because they reduce your taxes dollar for dollar. Because both of these types of educational deductions and credits are dependent upon income levels, year in school, and many other factors, it's not an easy choice which one is right for your case. Run all the scenarios or consult your tax advisor for the best treatment.
3. Medical expense deductions
To be able to deduct medical expenses you must itemize and expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI). Given the high rate of health care inflation, more people are eligible for this than in years past. Be sure to keep records of all medical expenses to see if you qualify each year.
Kent E. Irwin, ChFC, CLU, CAP, co-founder and CEO of eFinplan.com. eFinPLAN is the first and only web-based comprehensive consumer financial planning software designed for people who are trying to do a lot of their own financial planning. Find out more about how do-your-self financial planning and how to reach your goals at: =>http://www.efinplan.com/
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