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.