The sole benefit of Federal form Schedule A is to give us the opportunity to keep more of our hard-earned money. These are commonly referred to as “itemized deductions.” These are the tax deductions you want, and 3 you don’t.
Forms mentioned in this episode:
- Federal Form 1040 (The Big Daddy)
- Schedule A (Itemized Deduction Worksheet)
- Credit for Qualified Retirement Savings Contributions (Form 8880)
You Want: Charitable Deduction (Gifts to Charity)
You are a generous person and should be rewarded. Not only is it legal and smart deduct your charitable gifts from your income, it is morally appropriate.
My wife volunteers at a horse rescue ranch. Not only does she donate her time to muck stalls, she also writes them a check to help defer the costs of feeding such large and beautiful animals. The donation makes us feel good and the rescue ranch receives a huge blessing.
Giving money away doesn’t make us money, it’s just a good thing to do. The charitable deduction is just the icing on the cake.
You Want: Real Estate Tax Deduction
You can’t escape paying real estate taxes If you own a piece of property so you want to deduct this from your taxes. If you don’t currently own then you might want to consider buying, but not for the tax deduction.
Owning a home is a great investment, many say it’s an inflation hedge, but the real benefit is a better quality of living (especially when the mortgage is paid off). 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.
Every bit helps when it comes to reducing our income tax.
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 a contribution to an individual retirement account can be deducted independently of the others.
You can be single and renting but still enjoy the benefits of a deduction through planning for retirement.
You Might Want: Health Savings 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 contributions to your health savings account as well as let the savings grow tax free.
Don’t look at this 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 would.
Bonus For Low-Income Earners: Retirement Savings 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.
Of course, restrictions apply and your mileage may vary.
You Don’t Want: Medical And Dental Expenses
For tax year 2013, you could deduct medical expenses that were greater than 7.5 percent of what you made (i.e.: 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 trying to reduce your tax bill.
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.
Ain’t nobody got time for that! Take the deductions and get back to living your life.
You Don’t Want: Home Mortgage Interest Deduction
Yes. I said you don’t want a 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.
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 taking advantage of tax deductions you want and that tax deductions you didn’t want aren’t taking advantage of you.