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You can't avoid the taxman, but you can slash the amount of your income he claims. From the costs of home ownership to the expenses of business trips, the Internal Revenue Service allows a wide range of write-offs. To deduct expenses, you need to itemize, rather than take the standard deduction. Plus, there are exceptions to most deductions, so always read the relevant IRS sections or check with your accountant to see what rules apply to your situation.
If you own the home you live in, you might be eligible for some tax breaks. The biggest write-off for most people is mortgage interest. Your lender sends you details of your mortgage interest payments at the beginning of each year on a Form 1098 statement. In most cases, you can deduct that interest. The exceptions: Your mortgage is more than $500,000 if you’re single or $1 million if you file jointly, or your mortgage paid for something other than buying, building or improving your home. Your Form 1098 should also list the residential property taxes you paid during the preceding year. The IRS lets you deduct those taxes as well. If you don’t have a mortgage and you don’t receive Form 1098, call your county assessor for your property tax details.
The IRS lets you deduct some state and local taxes. Your car registration fee is deductible. You can also write off your state income tax. If you live in a state with no income tax, you can deduct your sales taxes. To write off sales taxes, save and add up all of your purchase receipts for the year, or use the IRS’ sales tax deduction calculator, which estimates how much tax you paid based on your income. If you bought a car, boat or airplane, you can add that sales tax to your calculated amount.
If your home is primarily where you work, or you regularly use your home as a place to meet clients, you might be able to deduct a percentage of your costs. To write off a share of your home expenses, you have to use your workspace only for work — your home office can’t do double duty as a family room or hobby nook. Nor can you claim a specific work area if you also handle important job duties elsewhere. If you meet the rules, you can deduct part of your real estate taxes, mortgage interest, rent, utilities, insurance and maintenance from your taxable income.
If you rack up on-the-job expenses working for someone else, the tax code could be your friend. Dues for chambers of commerce or professional groups, subscriptions to trade journals, tools and supplies you buy for work — you could be entitled to deduct them all. Also on the write-off list are union dues, work-related education, uniforms, travel, work-related hotel stays, gifts up to $25 and half of the cost of meals. You can even write off job-hunting costs such as résumé printing and interview travel, as long as you’re looking for a position in your current line of work and have not been unemployed for a substantial time. There are just two catches: Such miscellaneous deductions have to add up to more than 2 percent of your income, and you can’t write off anything your employer reimbursed you for.
Before you write off medical care, you have to spend a lot — at least 7.5 percent of your adjusted gross income. So if you earn $75,000 a year, you’re looking at dropping $5,625 on health care before you can begin to deduct. But if you know you have high expenses on the way — a family member gets seriously ill or your kids need major orthodontic work at the same time — this deduction is worth considering.
- Internal Revenue Service: Tax Information for Homeowners
- Internal Revenue Service: Deductible Taxes
- Kiplinger: The Most-Overlooked Tax Deductions
- Internal Revenue Service: Deducting Business Expenses
- Internal Revenue Service: Work From Home? Consider the Home Office Deduction
- Bankrate.com: Work From Home? Deduct Your Home Office
- Internal Revenue Service: Miscellaneous Deductions
- Wall Street Journal: Write Off Your Job Hunt!
- TurboTax: Deducting Medical Expenses for a Major Illness or Injury
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