Best Answer: Yes! you should try to use Schedule A to better the standard deduction. It requires digging through your records but could result in some savings. Re: state taxes -- there was a last-minute change after the tax instruction booklets were printed (details in Publication 600 on IRS site). You can deduct either state AND local INCOME taxes OR state & local SALES taxes -- but NOT both. Presume your $4,000 paid is income, not sales tax (unless you bought some REALLY expensive items and/or live in a high sales tax area). Now, what else can you deduct.
Under "Medical/Dental" you need to be able to show payments 'more than usual' -- IRS decided that 'more than usual' is more than 7.5% of your "adjusted gross income" -- see line 38 on Form 1040 (you can't use 1040A or 1040EZ if you wish to itemize deductions and not take the standard deduction). If you pay for health insurance, those premiums should give you a good start on hitting the 7.5%. Then add in payments to doctors, dentists, prescriptions, etc. -- you should have checks/credit card statements/cash receipts to document your costs. Another overlooked medical deduction is for travel to medical appointments -- you get $0.18 per mile. It can add up to several hundred dollars if you travel some distance and/or have lots of appointments. When you gather paperwork for doc/dentist visits, make note of the number of visits to each. Then use Mapquest to find out the one-way mileage, double it, multiply by the number of visits and multiply by $0.18. If by chance, you also pay premiums for long-term care insurance, they're deductible too (up to a limit, depending on your age -- see page A-2 in the 1040 instructions).
Under "Gifts to Charity" you can deduct contributions to charities, church, United Way, college, etc. However, you must subtract the value of any 'benefit' you receive (e.g. you gave $50 to PBS, but got a CD valued at $12 -- you can only
deduct $38). Again, you'll need to research your checkbook/credit card statements. You also get a mileage deduction for travel for volunteer work at such organizations -- a lower amount, $0.14. It's gotten much trickier to show contributions of "non-cash" -- e.g. bags of clothing to Goodwill. Read up on this!
I'm not experienced with the "Job Expenses. " deduction, but like the "Medical. " your expenses must be 'more than usual' -- this time it's a lower number: 2% of your line 38.
Lastly, try to set a goal of bying a house as soon as you can. It's the biggest and best investment for most people (NO, I'm not in real estate). B/c of the tax breaks you see on Schedule A, you can deduct all the mortgage interest you pay and the real estate taxes. Once you buy, you can have less tax taken out of your paycheck, which will give you a little more money to pay the mortgage. For example, if you take out $100,000 mortgage at 6% for 30 years, your monthly payment would be about $600. (NO sub-prime lender, pleazzzze). Of that, about $500 is interest -- $6,000 a year. So if your line 38 is $50,000, you're in a 25% tax bracket and that interest deduction makes for a $1,500 savings on taxes per year -- $125 a month to help pay that mortgage. If your line 38 is $80,000, you're in a 28% bracket and the same mortgage saves you $140 a month in taxes. Then, throw in real estate taxes -- say $3,000 a year, and you pick up another $62-$70 per month. Together, that's $187-$210 a month that you can lower your withholding and use the extra money in your paycheck to pay the mortgage. And that's just the federal tax. If you also pay state/local taxes and the tax forms allow for mortgate/real estate tax deuctions, you'll have savings there, too. Hope I'm being clear.
notanexpert · 9 years ago