Think you know all possible tax deductions? Think again
Where do youm find out about income tax deductions? Every tax guide book, every publication put out by one of the major accounting firms, and everybody's brother-in-law seems to have their own list of favorite deductions. Even the Internal Revenue Service lists many of the most common deductions in the instruction booklet that comes with the 1040 forms it sends out. Some deductions aren't even written down anywhere; people just take them and hope they will be supported in tax court, if it comes to that.
One place many deductions are written down is in all those tax books prominently displayed on the shelves of book stores, drug stores, and magazine dealers. In many cases their authors have spent several years keeping track of the latest tax rulings and court cases so they can claim the longest list of commonly overlooked - and obscure - deductions.
These books are not expensive, usually around $5 to $7. And the Internal Revenue Service even helps you pay for them by letting you deduct the cover price, as well as the cost of any other publication or periodical that helps with tax questions or investments.
One group of taxpayers newly eligible for deductions probably wishes they were not in that position, says Kenneth Wolosoff, tax partner at Fox & Co., an accounting firm. These are the unemployed who, in addition to their reduced incomes, have to pay the costs of finding a new job.
For this group, which has steadily grown as the recession continues, most of the expenses related to finding a new job can be deducted. These include the costs of printing resumes, postage, stationery, telephone calls, driving to an interview, as well as the services of an employment agency or career-counseling firm.
Deducting travel expenses could also apply to air fare, if the job search requires it. Thus, a person living in California - even someone who still has a job, but is looking for a change - could legitimately deduct the air fare and hotel for a few days in New York, provided they had appointments with potential employers.
If the new job requires a move to a new location, the moving expenses are also deductible. Even people who do not itemize can take advantage of this by filling out Form 3903 and entering the total as an ''adjustment to income,'' reducing total taxable income.
''Many people overlook deductions that cary a different name,'' says Stanley Jensen, assistant to Henry Bloch, president of H&R Block, the tax-preparing service. These deductions that are not deductions include unreimbursed employee business expenses, child-care credits, credits for energy-saving home improvements, and credits for the elderly relative.
Tax credits, incidentally, are usually more valuable than deductions. A $100 credit reduces your tax by $100, while a $100 deduction only reduces your tax by
If you give any old clothes or furniture to a charity such as the Salvation Army or Goodwill, the value of these goods is deductible. If you cannot figure out how much that 10-year-old coat is worth, look for similar coats in the thrift store to see what they sell for.
One thing to remember, tax experts say, is that even if you are not sure of something that seems like a valid deduction, you should claim it anyway. It may not be listed in any book or IRS publication, and the IRS may disagree with it, but an agent may go along if you can provide further explanation.