Start Planning Your Taxes Now

DISCLAIMER: I am NOT a tax expert. When it comes to taxes, if you have doubts or questions you should consult a tax expert.

On Thursday my H&R Block tax class began talking about itemized deductions. There’s a lot of deductions available. The problem is that they take planning and organization ahead of time to be able to take advantage of them. Why? Because you have to keep records so that you have proof in case the IRS ever audits you.

So, there is no better time than right now to start planning your deductions for the 2006 tax year.

Itemized Deductions are calculated on Form 1040 Schedule A&B. The deductions are broken down as follows:

  • Medical and Dental Expenses – The total of these expenses must be greater than 7.5% of Adjusted Gross Income (found on Line 37 of Form 1040).
  • Taxes You Paid:
    – State and local taxes (either income taxes or general sales taxes)*
    Real estate taxes
    – Personal property taxes
    – Other taxes
  • Interest You Paid:
    – Home mortgage interest and point reported to you on Form 1098
    – Home mortgage interest NOT reported on Form 1098
    – Points on reported on Form 1098
    – Investment interest (Be sure attach Form 4952
  • Gifts to Charity:
    – Gifts by cash or check. If you made any gift of $250 or more, see page A-4 of Schedule A Instructions.
    – Gifts other than cash or check. Again, if you made any gift of $250 or more, see page A-4 (link above).
    – Carryover from prior year – If you weren’t able to take full advantage of gifts made during the prior year, you may be able to deduct them now.
  • Casualty and Theft Losses – Attach Form 4684 (See page A-5 of Schedule A Instructions
  • Job Expenses and Most Other Miscellaneous Deductions – These expenses must exceed 2% of your Adjusted Gross Income (Line 37 of Form 1040).
    – Unreimbursed employee expenses – job travel, union dues, job education, etc. Attach Form 2106 or 2106-EZ (also see page A-6 of Schedule A Instructions).
    – Tax preparation fees.
    – Other expenses – investment, safe deposit box, etc. (you might want to consult Publication 590)
  • Other Miscellaneous Deductions – listed on page A-6 of Schedule A Instructions and also in Publication 590.

    In a future post, I’ll share some information on how you might be able to plan for these deductions.

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