Personal Deductions

Thanks to the complexity of the United States tax codes, thesystem itself, and the variations of tax codes from state tostate, completing your personal tax return and maximizing yourdeductions and exemptions to their fullest potential, is liketrying to complete a mind-twisting maze. The average individualrequired to file a personal tax return has no grasp of the UStax system, and must therefore rely on one of the many taxprofessionals to complete their return. Quite often, deductionsand exemptions are overlooked simply because of a lack ofcommunication. The following article will discuss the personaldeductions available to the individual tax payer, and the factthat qualifying for these deductions must be communicated to thetax preparer.The really big one that most all taxpayers are familiar with isthe standard versus itemized deduction that removes a largeamount of the tax liability. The standard deduction is $3200 perpersonal exemption claimed on the tax return. If you're ataxpayer and spouse, with three children your standard deductionwould be $16,000. That's a lot of money to deduct from your taxliability. Again, however most everyone understands how thisdeduction works, and that the information to accuratelyconfigure this deduction is provided at the time of preparationand filing. What about the itemized deduction? Why are we givena choice of standard or itemized? We're given a choice becauseon the itemized deductions, or Schedule A of the 1040, certainexpenses are allowed a deduction that might prove to be a biggerbenefit for the taxpayer. What are these allowable deductions? Medical expenses, certain taxes paid, mortgage interest expense,points paid on your mortgage, charitable gifts, casualty andtheft losses, and unreimbursed employee expenses cover the vastmajority. Sometimes, the taxpayer's expenses in a certain areafor one year exceed what is considered the normal level, andfiling itemized deductions creates a bigger savings than thestandard deduction allowed. It is for this reason, that thetaxpayer must be aware of these deductions, and make the taxpreparer aware that an unusual situation exists. The stipulationthat exists here is that often the deduction is limited to apercentage of the adjusted gross income. What other deductions are available to take that directly affectthe adjusted gross income? Some of these are not as well known,yet have a bigger impact on the amount of tax liability you willincur based on your individual tax return. Educator expenses orexpenses you incur as a teacher in the education system aredeductible to a certain level and are not restricted by thepercentage rules of the itemized deductions. Health savingsaccounts, medical savings accounts, and individual retirementaccounts are other deductions that are applied on a dollar fordollar basis. If you happen to be among the nationsself-employed, there are additional deductions for an SEP, orself-employed pension fund, health insurance premiums expense,and one-half of your self-employment tax that remove taxliability, dollar for dollar spent. Are you a student that paysstudent loan interest, or part of your qualified tuition andfees? Then you're also eligible for a dollar for dollardeduction. This has proven to be an exceptionally wonderfulbenefit for many of the non-traditional students returning toschool in their thirties and forties, that struggle to paytuition and fees. This is also deductible if you paid theseexpenses for a dependent child to attend college. The only thingto make sure that you guard against is double deduction. Don'ttake the deduction if your child is taking the deduction ontheir tax return. Generally, however, if a parent is providingthe support for their child to attend college, the child doesn'tfile a tax return at all; usually they're still being claimed asa dependent.Did you have to move this year, in order to keep your job? Didyou take a new job that required you to move? Moving expenses isalso a tax deduction that is tremendously overlooked, and nottaken as a deduction. Why? Generally, the deduction is takenbecause many of the individual taxpayers that would qualify forthe deduction simply aren't aware that the deduction exists.As you ready yourself for the "blow" of the tax man's axe, keepin mind that we often can reduce the burden of our tax liabilitysimply by educating ourselves about the basic information weshould provide to our tax preparers. The better job we do inproviding them with information, the better job they can do withproviding us a refund!