Tax deductions are a great way to save money on regular purchases within certain categories. The standard deduction alone saved some 85 million American’s a little over 0.5 trillion dollars in 2009. But the real way to claim deductions is by filing a Schedule A along with your 1040 long form. Categories of deductions available on the Schedule A include Medical, Taxes, Charity, Education, Mortgage and Causalities.
Deductions for Medical Expenses: Medical expenses are deductible on your tax return once you clear a certain level of your income in expenses, 7.5%. For this reason it is a good ideal to group major medical procedure in the same year to allow for them to be deductible. Items such as doctor’s bills, hospital visits, operations, prescriptions, premiums, and health care for dependents are deductible.
Taxes for State and Local: The state and the local government in your area collects income taxes, that’s the bad news. The good news is that the Federal government allows to deduct these tax expenses. Check the IRS website for a list of local and state taxes that you can deduct as not all taxes are deductible. TurboTax also is a good resource for what taxes you can deduct when preparing your tax return.
Charity Donations: Donations to charitable organizations, such as churches, are deductible without limit. When you provide transportation for a charitable event you can deduct the mileage. And when you purchase a ticket to a charitable event that is more expensive than the value of the service or entertainment provided, you can deduct the difference. Keep records of all your gifts.
Education Expenses: The federal government wants to support education and therefore gives tax deductions for expenses incurred while obtaining education degrees. The rules have changed recently with ARRA (the American Recovery and Reinvestment Act) but generally provides $2,500 per student in deductions for education.
When the American Recovery and Reinvestment Act (ARRA) was passed in 2009,early in the Obama administration’s tenure, it expanded the popular Hope tax credit for students attending college. This tax credit was designed to help offset college tuition expenses as well as other college related expenses.
Tuition and fees are the main areas that you may claim the credit for. Higher education purchased in 2009 or 2010, primarily, at any level of tradition college, years one through four. The credit is now called the American Opportunity credit and has increased by $700 to $2,500.
The other qualified expenses covered include books, supplies, and equipment. Anything that is required for the classes that you or your student are taking. A new laptop would be a nice way to spend the tax credit. To get the full amount of the $2,500 tax credit, a student needs to spend $4,000 on higher education during the year as the 2nd $2,000 is paid out at 25% of the expense.
There is a phase out if you earn over $80,000 or you and your spouse earn over $160,000, but $1,000 of the $2,500 is refundable beyond any tax that you might owe. IRS Form 8863 is the form you should complete when you prepare your taxes to claim the American Opportunity credit this year.
The American Recovery and Reinvestment Act of 2009 provides a number of tax benefits to consumers that are worth looking into if you fit into one of these categories and can take advantage of the tax credit according to the IRS. Purchasers of cars and homes should look into two of the tax credits and the unemployed get a generous tax credit also.
1. Making Work Pay Tax Credit: Most Americans saw an increase in their take-home pay in early April but should double check their withholding to make sure they are paying enough in taxes.
2. First Time Homeowner Credit: Homebuyers who purchase a home in 2009 can get a credit of $8,000 with no payback requirements.
3. New Vehicle Purchase: If you purchase a automobile in 2009 you can deduct taxes associated with the purchase including sales tax.
4. Unemployment Benefits are Tax Free: Up to $2,400 of unemployment benefits are tax free in 2009.
5. Health Coverage Tax Credit: This credit used to be 65% but has been increased to 80%. More people are eligible now so take a look at the Health Coverage Tax Credit for more information.