Maximizing Your Tax Deductions-Part II 2/18/07
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
Maximizing Your Tax Deductions- Part II
“Maximizing Your Tax Deductions- Part II”
For this second article in a two part series, I will conclude my refresher tax course in maximizing itemized deductions by outlining the final three categories. You can view part-one of this series at www.welchgroup.com.
Category 4: Charitable contributions. It’s essential to keep all receipts or check records for cash donations and you should always get receipts when you donate items such as furniture and clothing. You may not realize that you can also deduct the miles that you drove to volunteer at a charity. The IRS adjusts the mileage rate each year; the current mileage rate allowable for 2006 tax year is 14 cents per mile. Again, you can use www.mapquest.com to track your mileage.
Category 5: Casualty and theft losses. If you suffer a loss through fire, flood, theft or vandalism, you can claim a loss. The only catch is that the IRS limits the losses that you can deduct to losses incurred that exceed 10% of your adjusted gross income less $100.
Category 6: Job related expenses and certain miscellaneous deductions. This is the key category that could really pay off at tax time! Your total miscellaneous expenses must be more that 2 percent of your adjusted gross income, but this is easy to meet since numerous expenses fall under this category. Some commonly overlooked deductible expenses include subscriptions to work-related publications, fees for professional organizations, union dues, and work related education costs if it is required by employer or improves skills for your required work. Remember, though, you can only take these if you were not reimbursed by your employer. Also, if you searched for a new job and it is in the same field of work then you can deduct job hunting expenses even if you don’t land a new position. These expenses include cost of resumes, phone expenses, postage, career counseling, employment agency fees, legal fees, and travel to and from your interviews. If you have business-related expenses for travel away from home, transportation, entertainment, meals and gifts are deductible. These expenses include car, air, and bus costs, meals and lodging, baggage charges and even cleaning and laundry expenses. Also, you can generally deduct up to $25 of business gifts you give to any number of individuals during the year. The costs of work uniforms are deductible if they are required for employment and not suitable for everyday wear such as healthcare workers, firefighters and law enforcement officers. Other significant deductible expenses that are easily overlooked include accountant fees, legal fees, investment fees, and safety deposit box fees. A commonly missed deduction is depreciation of home computer if you use it to produce income such as managing your investments that produce taxable income.
There is a 3% phase-out rule for itemized deductions if your 2006 adjusted gross income exceeds $150,500 (Married Filing Joint). This simply means a portion of your itemized deductions will be disallowed if you make over $150,500. Current law repeals the 3% phase-out by December 31, 2009.
My thanks to my associate, Kimberly Reynolds, for her assistance with this article.