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Overlooked Tax Deductions

Overlooked tax deductions can cost you dearly. Cut your tax bill by claiming all the breaks you deserve. Don’t take the easy way out by claiming the standard deduction. You could be giving away your hard earned dollars. Here are some of the most commonly overlooked tax deductions:

Contributions to IRAs. You may be entitled to deduct contributions to an individual retirement account (IRA). And you may still do this up to April 15. (If you are part of an employer-sponsored retirement plan and your income exceeds certain limits you may not get this deduction.)

Home business expenses. If you run a business in your home, you may be entitled to deduct the cost of your office and equipment. Special rules apply to prevent you from deducting personal expenses, but you shouldn’t forego legitimate deductions because of this.

Health insurance for self-employed. Employees can receive health insurance from their employers tax-free, so self-employees may deduct 60 percent (in 2000 and 2001) of their health insurance premiums “above the line.” This means that you get the deduction even if you can’t itemize.

Student loan interest paid by parents. if parents pay back a child’s student loans, the IRS treats the money as if it were given to the child, who then paid the debt. So a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student-loan interest paid by Mom and Dad. And he or she doesn’t have to itemize to use this money-saver.

Single parents may file as head of household. If you are single at the end of the year and had a dependent child (or other dependent) living with you for at least half the year, you may qualify for lower tax rates by claiming “head of household” as your filing status rather than “single.”

Child care expenses. If you have a child (or children) who qualify as your dependent(s), you can deduct expenses paid for a child care provider, which phases out at higher incomes. Eligible child care programs include before and after school care and day camp.

State sales taxes. This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes, or state and local sales taxes. For most citizens of income-tax states, the income tax deduction usually is a better deal. IRS has tables for residents of states with sales taxes showing how much they can deduct. But the tables aren’t the last word. Read more at http://jamestaxlaw.com/sales-tax-deduction/