By Randy Neumann
U.S. Representative Rob Portman (R-OH) recently said, “The income tax code and its associated regulations contain almost 5.6 million words – seven times as many words as the Bible. Taxpayers now spend about 5.4 billion hours a year trying to comply with 9,000- plus pages of tax laws.”
Yes, the Internal Revenue Code is voluminous, but it is not all bad. In fact, some of it is good for the taxpayer; you just have to know where to look. As an example, you can write a check that is income tax deductible to reduce the public debt that was, at the time of this writing, in excess of $14 trillion. All you have to do is make your check payable to “Bureau of the Public Debt” and send it to: Bureau of the Public Debt, Department G, PO Box 2188, Parkersburg, WV 26106-2188.
Of course, contributions to reduce the public debt are subject to the rules and limitations for charitable contributions, and they can be mailed with your tax return or independently. What follows is a list of some deductions that you might find helpful.
One is hosting an exchange student. Do you have a student living with you under a formal agreement with a qualified organization that exists to provide educational opportunities for that student? Is that student a full-time student at a U.S. high school or secondary school? Is he or she not your dependent or relative? If you host an exchange student, all of this may apply. If it does apply, you are eligible for a tax credit of $50 for each month the student lives with you (15 or more days of a month count as a full month).
A tax credit is not a deduction. It is better than a deduction. It is a dollar for dollar refund of taxes due.
It pays to volunteer. Volunteer work in itself will not provide you with a tax break; however, you may be able to deduct 14 cents per mile on your 2011 federal return for charity-related mileage or the cost of the gas you used while driving on behalf of the charity, whichever is greater. You can also deduct the cost of tolls and parking related to your driving.
Away from the driver’s seat, you can also characterize the out-of-pocket expenses you pay on behalf of a charity or qualified non-profit organization as charitable deductions (if the organization hasn’t reimbursed you for them). Buying equipment for the charity, buying office supplies or stamps, buying and cleaning uniforms – these are just some of the expenses that are deductible.
Next topic is travel expenses related to medical care. IRS Publication 502 states that you may deduct 16.5 cents per mile on trips you take to obtain medical care for yourself or your dependents. The trip has to be “primarily for, and essential to, medical care.”Bus, taxi, plane and train fares, and ambulance service fees all count as expenses toward the deduction as long as the travel was for medical care.
Parents transporting children who need medical care and nurses traveling with a patient can also claim the deduction. Also, some who qualify for this deduction may also get a tax break of up to $50 per night for lodging related to trips taken for health care.
Did you buy a house, an RV or a boat in 2010? You may be able to exploit state or local income tax deductions. Only seven states don’t have state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming). Tennessee and New Hampshire merely tax forms of dividends and interest.
In certain cases, you can deduct the cost of a safe deposit box rental. The IRS says you can if you rent the safe deposit box to store taxable incomeproducing stocks, bonds or investment-related papers and documents. Sorry, if you store tax-exempt securities, jewelry or other personal items in the box, you can’t exploit the deduction.
The Saver’s Credit is the up-to-$1,000 tax credit that you may be able to claim if you contributed to an IRA or qualified employersponsored retirement plan like a 401(k) or 403(b) last year. Your AGI (adjusted gross income) has to fall below a certain level to claim it. For 2010, those levels were $55,500 (married filing jointly), $41,625 (head of household) and $27,750 (single, married filing separately or qualifying widower). The credit can be as large as $2,000 for joint filers!
Did you pay a tax professional in 2010 to prepare your 2009 tax return? The IRS commonly lets you deduct the fees you paid to such professionals. The cost of tax preparation software and tax publications counts toward the deduction, and so do efiling fees.
Many more deductions are available. For a long list of potential tax breaks, see IRS Publication 529 at www.irs.gov/ publications/p529/ar02.html. See your tax professional to determine whether you qualify for some of these obscure deductions and credits.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for the individual. Randy Neumann CFP® is a registered representative with securities and insurance offered through LPL Financial. Member FINRA/SIPC. He can be reached at 12 Route 17N, Suite 115, Paramus, 201-291-9000.