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.
The IRS has come out with a list of helpful tax tips about your lottery and gambling winnings. Although all gambling winnings are taxable, you can avoid paying taxes on your winnings if you can document gambling losses of the same amount.
Winnings from lotteries, raffles, races, and casinos including prize items are all taxable, that is the bad news. Sometimes the establishment with which you won the wager will automatically deduct taxes and provide you with a W-2G to file with your taxes. Report all your winnings for the year on line 21 of the 1040. Filing the 1040 long form is required when you have gambling winnings.
File a Schedule A also, where you itemize the losses you have also had. Keep documents from the events with which you lost money and total the amounts wagered on line 28 of the form. You can make all your winnings tax free if you have enough losses to offset them. None-the-less you can reduce the tax expense with the losses you do have.
The IRS has released ten tips to help you deduct charitable gifts this tax season. When completing your Schedule A for your federal tax refund, don’t forget to take your charitable contributions as they can add up to a good sized tax deduction. Here are the rules to make sure you get the deduction:
1. Contributions must be made to qualified organizations.
2. You cannot deduct time or services, only money and gifts can be deducted.
3. Any merchandise received in exchange for a gift must reduce the value of your gift for the tax deduction.
4. Fair market value must be used for stock and property donations.
5. Items must be in good condition or better to be allowed.
6. Save your bank records for any money donations you make and save the records with your tax return.
7. Also get a written acknowledgement from the organization when you make a donation greater than $250.
8. IRS Form 8283 must be used when your property contributions exceed $500 in value.
9. You must get an appraisal when donating property valued greater than $5,000.
10. If you donated to a Midwest disaster relief area you get special benefits which you can read about in Publication 4492-B.