If your itemized deductions exceed the standard deduction provided by the IRS ($11,400 for married filing jointly status and $5,700 for single taxpayers in 2009), it might benefit you to go that route. As Mary Beth Franklin, Senior Editor at Kiplinger's Personal Finance Magazine, contends, "millions may be leaving money on the table" by overlooking potential itemized deductions, such as medical expenses, certain taxes and expenses related to business or continuing education.
Medical and Dental Expenses
The IRS allows you to deduct medical and dental expenses paid for yourself, your spouse and your dependents during the tax year. The IRS uses broad criteria for what qualifies. You can deduct expenses related to "the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment" involving both physical and mental health, according to IRS Tax Topic 502. The IRS also permits you to deduct the cost of prescription drugs, except for insulin. While items such as false teeth and hearing aids are deductible, you cannot include expenses incurred for over-the-counter drugs, cosmetic surgery, trips made to improve your health or funeral and burial expenses on your itemized list.
Taxes and Interest
You can deduct several types of taxes paid during the tax year, including real estate taxes, state and local income or sales taxes and qualified motor vehicle taxes. Any state, local and foreign taxes levied against real property are ripe for deduction, though local benefit taxes for property improvements (e.g., street or sidewalk enhancements) do not qualify.
In terms of state and local income or sales tax, the IRS gives you a choice. You may deduct one or the other. The sales tax deduction, notes IRS Tax Topic 503, is generally not allowed, but was available from 2005 through 2009. In addition, sales tax paid on new vehicle purchases made after February 16, 2009 qualifies. You may take this deduction in addition your standard deduction, if you do not itemize. Consult a tax professional to determine future availability and if you qualify for these types of deductions.
Interest paid on a mortgage loan can also be deducted, but personal interest on auto and personal loans, for example, does not qualify. Within situation-determined limits, you may also qualify to deduct student loan interest.
Business-related travel expenses as well as expenses associated with the business use of your home or car qualify as itemized deductions. The rules regarding business travel expenses are tricky, so check with your tax advisor, but generally, you can deduct reasonable expenses incurred when traveling away from home for your job. The IRS considers transportation costs as well as food and lodging payments acceptable business expenses. In addition, if your home serves as a primary place where you conduct business or you use your car solely for business, you may be able to deduct related expenses.
If you paid educational expenses that sustained or enhanced your job performance or were required by your employer to maintain wages or job status, the IRS allows you to deduct such costs. If you were temporarily out of work, typically an absence of one year or less, education during that time may qualify as long as you re-enter the workforce in the same area, according to IRS Tax Topic 513.
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