Tax Deductions You May Have Overlooked

I don't think we can ever be completely positive that we've claimed every deduction possible on our taxes, some are forgotten and others may not even be known to us. Following are some deductions that are commonly overlooked by taxpayers.

1) Non-cash contributions.
Don't forget about any contributions you may have made by credit card. Also, any clothes, furniture, etc. that you may have dropped off to goodwill are deductible, so be sure to get a receipt before you leave. Items must be in good or better condition to be eligible for the deduction.

2)Health insurance premiums.
Any health insurance premiums you pay, including some long-term-care premiums based on your age, are potentially deductible. Medical expenses have to exceed 7.5% of your adjusted gross income (AGI) before they give you any tax benefit.
But if you're self-employed and not covered by any other employer-paid plan, you can deduct 100% your health insurance premiums "above the line." Above the line means the expense is included in adjusted gross income and doesn't get lumped in with itemized deductions. That means that you not only don't have to exceed the 7.5% floor, you don't even have to itemize!

3)Educator expenses.
If you're a qualified educator, you can get an above-the-line deduction of as much as $250 for materials you bought in 2007 and may buy in 2008. That includes books, supplies and even computer equipment. You qualify if you're a kindergarten through grade 12 teacher, aide, instructor or principal.

4) Student higher education expenses
For 2007, if your adjusted gross income isn't more than $65,000 ($130,000 on a joint return), you can get an above-the-line deduction of as much as $4,000 for any higher-education expenses you paid. The law expires after 2007, but it will most likely be renewed.

See if you qualify for the Hope and Lifetime Learning credits. The Hope credit is worth as much as $1,650 per student subject to income limits for 2007 and $1,800 for 2008. The Lifetime Learning credit is worth as much as $2,000 per return. Compare the credit with the deduction, and go with the one which gives you the biggest benefit.

The following is from the IRS website:

Hope and Lifetime Learning Credits
2007
For 2007, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim an education credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return).

2008
Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits.
Income limits for credit reduction increased. For 2008, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return).
Hope credit. Beginning in 2008, the amount of the Hope credit (per eligible student) is the sum of:
100% of the first $1,200 of qualified education expenses you paid for the eligible student, and
50% of the next $1,200 of qualified education expenses you paid for that student.
The maximum amount of Hope credit you can claim in 2008 is $1,800 per student

5) Clean fuel credit
Credits are good because they are a dollar-for-dollar reduction in tax. And if you bought a new hybrid gas-electric auto or truck in 2007, you can get a conservation tax credit of between $250 and $1,000 and an additional fuel economy credit of between $400 and $2,400, depending on the make and the fuel economy.

6)Investment and tax expenses
Many of us forget tax planning and investment expenses because they are part of miscellaneous itemized expenses. Their total must exceed 2% of your adjusted gross income before you get any tax benefit.
Expenses to track include your employee business expenses, tax preparation fees and even the portion of your legal or accounting fees relating to tax planning. Many people shortchange themselves on the deduction of investment expenses. Remember the safety deposit box fees, the annual fee paid your broker and any IRA fees you pay directly. Also remember the cost of your investment publications on subscription -- such as Forbes, Fortune, BusinessWeek, Worth and Barron's, the investment newspapers you buy off the newsstands and keep track of your long-distance phone calls to your broker and investment adviser, and the mileage to go see them.

For more information visit the IRS website at www.irs.gov.