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    5 Deductions You Want (And 3 You Don’t)

    At the core of the Federal form Schedule A is the chance to keep more of your hard-earned money. These are commonly referred to as “itemized deductions.” There are more than a dozen to choose from, but not all of them are the same.

    Here are five deductions you want and three you don’t.

    You Want: Charitable Giving Deduction
    You are a generous person and should be rewarded. Keeping track of each 501c(3) donation made is not only required for you to claim the deduction but is morally appropriate as well. After all, who benefits from your gift? You and the charity of your choice. That’s a wonderful thing in our tax code.

    You Want: Real Estate Tax Deduction
    If you own a piece of real estate then you can’t escape this one. A house is a wonderful investment over time, and reducing your tax while enjoying the benefits of home ownership is a win-win.

    You Want: Personal Property Tax Deduction
    Some States aren’t affected by a personal property tax as much as others. In States where your vehicles and motorized toys are taxed, we can get a little relief, albeit a small one. But every bit helps when it comes to reducing our income tax.

    You Might Want: Health Savings Account Deduction
    The rise in unemployment, self-employment and costs of company-sponsored health insurance plans is helping the health savings account (HSA) to gain popularity. You are allowed to deduct the premiums paid on your health insurance as well as build savings that grow tax free. Don’t look at it as a way to keep the government’s hands off your money; look at it as a favor for the government. You won’t be a burden to our already struggling Medicare system because you invested the money more wisely than the government did.

    You Might Want: IRA Deduction
    This is more of a reduction to your adjusted gross income than a deduction, but it all comes out of the wash the same. The only difference between this one and the others already mentioned is that the individual retirement account deduction can be taken independently of the others. You can be single and renting but still enjoy the benefits of a deduction through planning for retirement.

    Bonus For Low-Income Earners: Retirement Savings Contributions Credit
    You could qualify for an additional credit by completing Form 8880 in addition to the IRA deduction. This is an awesome way to double-down in tax reduction, but it has some tight income limits. Restrictions apply.

    You Don’t Want: Medical And Dental Expenses
    For tax year 2012, you can deduct medical expenses that were greater than 7.5 percent of what you made (technically it is more than your AGI). This is a deduction I don’t think anybody really looks forward to, because who wants to be spending that much on their own healthcare? If you are in that situation, then God bless you; you probably had bigger problems on your hands than reducing your tax bill.

    You Don’t Want: Home Mortgage Interest Deduction

    If you have a personal residence with a mortgage, then by all means, take the deduction. But do not fall for the lie that you have to have a mortgage in order to save on taxes. That way of thinking is similar to saying you need large healthcare expenses for the medical and dental deduction. Remember, a deduction simply waters down your taxes; it does not eliminate them dollar for dollar. You will benefit greatly by paying off the house and saving the tens of thousands of dollars in interest than reducing your taxes by a grand or two.

    You Don’t Want: Casualty And Theft Losses
    This is a sad situation. Nobody wants to take advantage of this line in the Internal Revenue Code because it means you had a loss. Losses are expensive and demotivating, and thefts can be paralyzing. Morally and legally, you can deduct up to $3,000 each year following this tragic event until you reach the max allowed. Nobody has time for that. Take the deductions and get back to living your life.

    It would be un-American to leave money on the table that is rightfully yours. Whether you want them or not, claim all the deductions you legally and morally can. I hope you are getting the benefits from your tax deductions and that the tax deductions are not taking advantage of you.

    Steve Stewart is a Personal Finance Architect who helps families design their house of financial freedom. His experiences in the market swings of 2000 and 2009 brought him to a powerful realization that the key to wealth is to live on less than you make and doing something smart with the difference. His philosophy is a simple one: Spend wisely and purposefully, invest regularly but don't chase the market, and pay attention - not interest. Steve has a show which regularly ranks in the Top 20 iTunes Investing category, the MoneyPlan SOS podcast, and he has been coaching couples with their personal finances since 2007. If you are looking for ways to Cash-Flow So You Can Go Pro then contact Steve through his website, http://SteveStewart.me/

    | All posts from Steve Stewart

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