Even if you hire an accountant or preparer to prepare your income taxes, you should have your own checklist to be sure you don’t forget anything important, and to supply your preparer with all the information that they need in order to secure every allowable deduction. Kiplinger recently posted a baker’s dozen of items that cause people to overpay their income taxes. You can see the full article at Kiplinger’s online web site, but here are a few of the highlights:
State sales tax - you can deduct either your state income tax or sales tax, whichever saves you the most money. If you made a very large purchase on credit last year and paid sales tax, you may want to see if the sales tax deduction makes sense for you.
State Income Tax You Paid in 2007 for 2006 - If you paid estimated tax in 2007 for 2006 or paid additional state tax with your return or extension, remember to include this in your deductible state income tax when filing your Federal return.
College Tuition, Student Loan, and other Educational Expenses - there are several tax breaks for helping with your children’s education, though they are limited and you have to follow the rules to qualify.
Child Care Credit - If you have qualified childcare expenses, this easily forgotten tax break can save you money.
Excluding Reinvested Dividends from the Cost of Securities You Sold: When you buy a mutual fund for $1000 and then sell it for $3000 later, you may have a few hundred dollars worth of shares that were automatically purchased with reinvested dividends. You should add the cost of these additional shares to the original cost, which will reduce the amount of profit that you have to pay taxes on.
Small Charitable Deductions - Here’s an example of where keeping an envelope or shoebox for receipts or notes can pay off at tax time. Just don’t mix these notes with other junk or it will take more time to find this information than it’s worth.
Points You Paid When Refinancing - If you refinance and pay points, you usually have to spread out the deductible points across the life of the new mortgage. If you then pay off the refinanced mortgage early by selling the house or refinancing with a new lender, you can then write off the unused points. Many people forget about these deductible points - don’t expect your tax preparer to read your mind.
If you forget about a significant tax deduction, you get 3 years to file an amended return.
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