Buried Treasure
Don't overlook valuable tax deductions

Many lesser-known deductions fall into the medical expenses and miscellaneous itemized deductions categories and, as such, must exceed a “floor” or minimum amount of your adjusted gross income (AGI) before they become deductible. In the case of medical deductions, that floor is 7.5 percent of AGI; for miscellaneous itemized deductions, it is two percent.

Health insurance: Those who are self-employed can deduct 60 percent of their health insurance payments from gross income. If you are not self-employed, you deduct health insurance premiums on Schedule A, subject to the 7.5 percent floor for medical expenses.

Self-employment tax: Self-employed workers are eligible to deduct half the self-employment tax paid, as a deduction from gross income. According to the IRS, this is one of the most frequently overlooked tax deductions.

Job hunting: Costs associated with looking for a new job in your current line of work are deductible as miscellaneous itemized deductions.

Job-related clothing expenses: The cost of clothing you buy for your job that cannot also be used for general wear is deductible as a miscellaneous itemized deduction, as is the expense of laundering and dry cleaning such clothing.

Closing costs: Most closing costs incurred in buying a house are not deductible. However, check your settlement statement for property taxes or mortgage interest (and possibly points) you paid at the closing that may not show up on the year-end statement from your lender and be sure to deduct those amounts.

Tax planning and preparation: Fees you pay for tax planning and preparation are deductible as miscellaneous itemized deductions subject to the two percent floor.

Early withdrawal policies: If you made a premature withdrawal from a certificate of deposit or time saving account, you can deduct the amount of any penalty you pay even if you don’t itemize your deductions.

Bad debts: A bad debt is deductible as a short-term capital loss on Schedule D in the year that the debt becomes totally worthless.

Appraisal fees for charitable donations: Fees that you pay to determine the fair market value of donated property can be claimed as miscellaneous itemized deductions on Schedule A.

Old clothes, furniture and other items donated to charity: You can generally deduct the fair market value of non-cash contributions to any qualified charitable organization. You can also deduct mileage – at a rate of 14 cents per mile in 2000 – if you use your car in connection with volunteering for a qualified non-profit.

At higher levels of income, many itemized deductions are phased out. The AGI levels at which the phase-out begins are adjusted annually for inflation. For 2000, they are $128,950 for singles, heads of households and married people filing jointly – $64,475 for married filing separately.

Data compiled and edited by The Lane Report

Back to Finance Index

Back to March Issue

Copyright 1996-2001, by Kentucky Business Online.  All rights reserved.

Editorial content is copyright 2001, Lane Communications Group
All editorial material is fully protected and must not be reproduced in any manner without prior permission.

The Lane Report is a trademark of Lane Communications Group.  All other trademarks are the property of their respective owners.