If ever there was a year to look for deductions to your tax bill,
this is it. The reason? Millions of Americans will be paying more
because of higher tax levels imposed by Obamacare and the ironically
named American Taxpayer Relief Act of 2012. But even if you aren't
subject to the higher rates, it still pays to get all the breaks you
PRIVATE MORTGAGE INSURANCE. The home mortgage interest deduction
is a perennial favorite of homeowners and while that deduction is now
on a phase out schedule for high earners, others may benefit from the
private mortgage interest deduction. PMI is an insurance policy that
lenders require if you can't make a 20 percent downpayment on a home.
And, 2013 is the last year you'll be able to claim the deduction unless
Congress changes its mind.
You'll find the amount of PMI you paid on your bank's mortgage
interest form 1098. The break is available to homeowners who took out
their mortgage after Jan. 1, 2007.
And, like a lot of deductions, this one has income phase outs too.
The sweet spot for this break is an adjusted gross income below
CARING FOR A DEPENDENT PARENT. This is more complicated than it
sounds, but if you can claim a parent as a dependent, you can save on
taxes. Your parent must live with you and get more than half of his or
her support from you. Keep in mind the parent's earnings must be less
than the tax exemption level. The devil is in the details with this one,
and you should consult a tax professional. But if you meet the
requirements, you'll be able to claim an added personal exemption on
your income tax return.
An added plus, any medical expenses you pay for that parent can
contribute to the threshold for deducting medical costs. To meet that
threshold, you have to spend 10 percent or more of your adjusted gross
income on medical expenses. (That threshold increased from 7.5 percent
COLLEGE LOAN INTEREST. Parents struggling with the high cost of
education will find they can deduct up to $2,500 of annual interest on
loans to pay for college. Income phase outs exist, naturally, so high
earners might want to consider taking out a home-equity loan instead,
which in most cases, will allow you to deduct interest.
HOME EQUITY LOAN INTEREST. You probably know that mortgage interest
is deductible. Interest on mortgage debt up to $1 million is deductible,
but phases out at higher income levels. Interest on home-equity loans
totaling up to $100,000 also is deductible, no matter what you do with
JOB SEARCH. If you were looking for a job last year as millions of
Americans were, the costs of that job search is deductible. File them
under miscellaneous expenses. You don't have to be successful to claim
the deductions. If you do land a new gig, you can also claim relocation
expenses for the new job. Consult a pro to determine exactly what you
There are more deductions -- many more -- but you should be
aware that some of them are IRS audit bait. Here are a few of the
deductions that might get you a second look, if not an audit:
Home office deductions. This one draws attention especially if you claim a salaried income.
Non-cash charitable donations, especially if you donate a car to a charity.
Earned income tax credit. This benefit for low-wage earners is often abused and the IRS will take a close look.
When it comes to deductions, one of the things IRS auditors keep
in mind is just how you stack up with other taxpayers. CCH Inc.
recently calculated average deductions, and while you shouldn't use
these as a hard and fast guide to your own tax return, it makes sense to
have a general idea of what people in your income bracket pay. For
example, folks with an income range of $50,000 to $100,000, claim
medical expenses of $7,312 interest of $9,320 and charitable
contributions of $2,815. These households pay federal taxes of $6,111.
So the point, here, isn't to discourage you from the taking all the
breaks that are due to you. In fact, I say take absolutely everything
you are eligible for. The IRS expects nothing less.
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