Taking Advantage of Tax Deductions

There are plenty of tax deductions out there just waiting to be found. The problem is that many people simply take the standard deductions and miss a lot of the potential deductions available that they might have found by itemizing.

Essentially, there are two overriding themes to tax deductions.

First, most tax deductions center around those areas that are the necessities of life, such as medical costs, buying a home, having children, earning a living, getting an education and helping people less fortunate than yourself. The second basic premise of a tax deduction is that it is a reasonable expense within the deductible category.

Below are some areas to consider when looking for deductions. It is worthwhile to review these carefully and make sure you are within the IRS guidelines. Then, you should review them with your accountant. Software programs like TurboTax, among others, can help you determine what is and is not deductible.

Review your medical expenses. They need to total at least 7.5 percent of your adjusted gross income (AGI) in order for you to take the medical expense deduction. This includes more than doctor and dentist visits. You can deduct medical-related expenses that exceed those covered by your insurance plan or are not accepted by your insurance plan. For example, glasses, contact lenses, braces, false teeth, lab fees, emergency room visits, travel to and from medical treatments, medical supplies and laser surgery are all potential medical deductions.

Work-related expenses may include uniforms or specific clothing necessary for your job, business travel expenses and the many costs associated with a work-related relocation. If you are self-employed, your home office is deductible if it is your primary place of business. This means that it is used regularly to meet with clients or customers in the ordinary course of business or is a separate structure apart from the residence portion of your home. If your home-office is actually part of your home, you can deduct proportionally the area used for business. You can also deduct your business computer and other business expenses. Be careful to clearly follow IRS guidelines that define what is used for business purposes.

For homeowners, mortgage interest payments are deductible. Therefore, if your mortgage interest is higher than your standard deduction, itemize and take advantage of the greater deduction.

As of 2005, the total deduction for each child is $700. If you are adopting, you will receive a $10,000 tax deduction per child.

Charitable deductions are always in vogue. Make sure you have a receipt or statement of the value of goods donated if your donation is in the form of goods or services rather than cash.

Education deductions include tuition and enrollment fees to accredited public or private institutions above the high school level. They can be deducted on behalf of yourself, your spouse or your dependants, after deducting the portion paid by college financial assistance or scholarships.