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MiddletownJournal.com

It pays to scour for deductions

Itemizing isn't for everybody — but the results can be pleasing

By HANK EZELL

Cox News Service

February 13, 2005

One out of three American taxpayers worries that he will miss a deduction and pay more than he owes to Uncle Sam.

That is the most common source of concern, according to TurboTax, the software company that sponsored a January survey. Anxiety over deductions is more likely than worries about owing more money (29 percent) or getting audited (18 percent).

More tax tips: This year's basics  Don't-even-think-about-it deductions   Do-it-yourself tax preparation   Software to speed the process   Resources for quick help   Filing for free   Choosing a tax preparer  1.7 million unclaimed refunds  Recent Hank columns: Prompt filers will receive tax refunds quicker than ever  A new year calls for a new financial plan  Now's the time to assess spending, saving habits  More "Bank on Hank"

But if some see the hunt for deductions as pesky or vexing, others see it as a challenge.

"The bottom line is to pay as little in taxes as possible," said Mike Leibowitz, a 61-year-old Roswell, Ga., resident.

He recalls the year when he stalked along behind his accountant, reading big books of tax advice in search of missed deductions. He found enough to change a $1,000 tax bill into a $1,400 refund.

"That was the year I stopped using accountants," Leibowitz said. "Now I use tax software because it helps me find every single possible deduction that exists."

For newcomers to the hunt, the first step is deciding whether to bother with itemized deductions at all. The other option is to take your standard deduction.

Itemizing makes sense if you have deductions greater than the standard deduction — $4,850 for single taxpayers and $9,700 for married couples filing jointly.

The major categories for itemized deductions are mortgage interest, real estate taxes, state or local income taxes and medical bills, as well as charitable contributions.

Itemizing is not for everybody, but the benefits can be substantial. During 2003, 39 percent of Georgia taxpayers chose to itemize — and their deductions averaged $19,839, according to the Internal Revenue Service.

The rules can get complex. For detailed advice, check out IRS Publication 17 or the instructions for Schedule A. Here is a quick look at the major categories:

• Medical and dental expenses. You can take a deduction only on the amount of expenses that exceed 7.5 percent of your adjusted gross income.

You can't deduct any amount that was covered by insurance. But you can deduct some insurance premiums, as well as drug costs and doctors' bills. Check the rules for unusual items, such as expenses in stop-smoking, substance-abuse and weight-loss programs.

• State and local taxes. This includes income, real estate and personal property taxes.

This year taxpayers can choose to deduct sales taxes rather than income taxes, which is a major benefit for residents of states that have no income tax.

• Mortgage interest. The provision includes first and second homes, and it includes first and second mortgages, home equity loans and refinanced mortgages.

• Gifts to charity. Donations can be cash or property. Several hundred thousand charities are acceptable to the IRS, including organizations with religious, charitable, educational, scientific or literary purposes. There are some record-keeping requirements, particularly for gifts worth more than $250.

But don't get cute. You can't deduct political contributions, fraternity or country club dues, lottery tickets or donations at a blood bank.

There are other categories, including casualty losses and a catchall miscellaneous area. That includes unreimbursed work expenses, union dues, some investment-related expenses, gambling losses and — perhaps sweetest of all — tax preparation fees.

Read more "Bank on Hank" columns