Tax deductions can require some extra reading of instructions, but there's big money to be saved when you file your tax return.
When you file your tax return, don't forget to pay yourself by taking advantage of available deductions.
These tax-code provisions provide big savings, but it can require some reading of instructions to make sure you don't make a mistake. And make sure you keep documentation like receipts in case you get an Internal Revenue Service audit.
Here's a quick guide to deductions – some commonly used and some little-known – that might lower your tax bill.
Standard deduction. This is designed to give a break to people who don't "itemize" other tax breaks. This year, the standard deduction will knock $5,800 off of taxable income for the typical single person, and twice that for couples filing jointly. You can itemize (list other deductions by filing Schedule A) or you can take this one, but you can't do both.
Qualifying IRA contributions. An individual retirement arrangement (IRA) is one of the most popular ways to save for retirement. The IRS says you "may be able to deduct some or all of your contributions to a traditional IRA," but not to a Roth IRA, which grants tax benefits at the time of withdrawal. "You may also be eligible for a tax credit equal to a percentage of your contribution."
Some filers will face limits in claiming this deduction, but for most workers it can cover $5,000 in contributions, or $6,000 if you're over age 50. And there's still time to make a deductible contribution for the 2011 tax year, up through April 15. Just be sure to your financial firm knows which tax year you're aiming for when you write a check.