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Take Legitimate
Deductions
Many taxpayers routinely
fail to take deductions that they are entitled
to, thus overpaying their taxes by billions of
dollars collectively. This is due to ignorance
and fear. Many people are so confused by tax
laws or so frightened by the threat of an audit
that they fail to take perfectly legal
deductions.
One common oversight is the
home office deduction. Some people who run a
business out of their home do not take a home
office deduction because they believe it will
raise a red flag. Other taxpayers forget to
deduct job-search expenses. In addition, about
one million taxpayers overpay their taxes by
taking the standard deduction instead of
itemizing.
Failing to take adequate deductions is
widespread. One reason for this trend is that
many taxpayers dont bother to keep records
necessary to establish or document deductions.
Figuring out the maximum legal deduction is not
always easy. One of the hardest things to do is
determining the valuation of used books,
clothing and furniture donated to charity. One
simple solution is to check prices of comparable
items on eBay.
Just because the IRS may
examine a deduction with a fine tooth comb, it
doesnt mean the deduction should be avoided.
Only about two million returns report a
deduction for the use of a home office, even
though more people are eligible. The key to this
deduction is recordkeeping, in addition to the
underlining concept of business use on an
exclusive and regular basis.
Another deduction that
taxpayers do not take full advantage of is the
business use of automobiles. You can write off
business use at a standard mileage allowance of
44.5 cents per mile instead of claiming your
actual driving costs. Some of these actual costs
can be gas, maintenance, depreciation (if you
own the car) or lease payments. Taxpayers should
consider deducting these actual expenses instead
of the standard mileage allowance if it results
in a larger write-off. Nevertheless, if you use
actual costs, you must have receipts to back up
your numbers.
Business owners regularly
miss taking a deduction for start-up costs. If
you started your business in 2005, you can elect
to write off your start-up costs (e.g.,
marketing and other exploratory costs) over a
period of not less than 60 months. If you are a
business owner who did not begin amortizing
(writing off the cost over time) in 2005,
amending a business return may be beneficial.
Visit
http://www.TheMoneyExpert.com for
assistance.
In addition to not
amortizing start-up costs, there are two simple
write-offs that self-employed individuals fail
to take full advantage of:
A deduction of 100% of
health insurance premiums as an adjustment to
gross income.
A deduction of 50% of
self-employment tax as an adjustment to gross
income.
Many taxpayers fail to
realize that their best tax shelter is their
principal and/or secondary residence.
Individuals should consider, if they could
afford it, a more expensive house. Most of your
monthly payment is going to deductible interest
and taxes; therefore, your after-tax cost will
not be as high as it appears. Remember that
interest on secured home equity debt of up to
$1,000,000 (limited to the fair market value of
the property when combined with acquisition
debt) is deductible.
One simple strategy can
reduce your tax liability is to use or make sure
your tax preparer uses the long form (Form 1040,
not 1040A or 1040EZ). Individuals who use the
short form are paying the absolute maximum tax
which can be paid on that level of income. Using
the long form allows you to identify potential
tax deductions. If you dont have more than the
standard deduction, the long form will point out
where your tax plan is lacking. Completing the
long form will also familiarize you with the
process of turning deductions into dollars.
Another strategy that can
be used to reduce your tax liability is reducing
your Adjusted Gross Income (AGI) in order to
increase allowable deductions. Medical expenses
are deductible only in excess of 7.5% of AGI,
and miscellaneous expenses are deductible only
in excess of 2% of AGI. Your goal is to reduce
your AGI.
Use the accompanying chart
in order to help you increase certain itemized
deductions. Notice that a business loss, IRA
contributions, and real estate deductions all
reduce your AGI.
Millions of Americans pay
too much in taxes. If you believe that you are
one of these, visit
http://TheMoneyExpert.com and find out how
to get expert assistance in these matters.
-Howard Slutsky, The Tax
Institute
The Tax Institute is a
recommended expert alliance of
http://www.TheMoneyExpert.com
For more information and
additional money strategy visit:
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The Worlds Leading Money Strategy Newsletter
2006 International
Administrative Services, Inc.
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