Tuesday, March 24, 2009

Your 1040 Tax Form Really Is A Treasure Map

Most Americans are afraid of doing taxes, and think their Form 1040 is booby-trapped. And that just isn’t true! With a little knowledge and a shift in perspective, you might find that Form 1040 is actually a treasure map, riddled with hidden gems and golden nuggets. Each line is an opportunity to pay less in taxes. While you probably don’t qualify for all of these credits and deductions, I just bet that at least one will save you money come April 15.

Line 23. Educator Expenses

Educators working in Kindergarten through 12th grade can deduct up to $250 per year. Qualified Expenses include the cost of any educational material you might use in the classroom. And this deduction applies to teachers, aides, counselors, principals, and instructors working at least 900 hours during the school year. Even better, if you and your spouse are educators and you file jointly, that deduction bumps up to $500.

Line 29. Self Employed Health Insurance Deduction

Self-employed individuals who purchase health insurance can deduct the entire cost of the coverage. Of course there are some restrictions: the deduction can’t be more than the net profit of your business; and if you are covered by a spouse’s health care plan at work, you don’t qualify for the deduction.

Line 47. Foreign Tax Credit

Any income taxes you paid to a foreign country are allowed as a credit. Review your 1099 investment statements for any of these taxes, as these are often overlooked. Form 1116 does not have to be attached to the return if the foreign taxes paid are from interest and dividends reported on 1099 statements and the total is under $300 for single filers, $600 for married couples filing jointly. But, no double dipping! Foreign taxes you claim for the credit are not eligible for a refund from the other country.

And let’s not forget about Schedule A for those who itemize their deductions.

Line 5(a) State and Local Income Taxes Paid

You can deduct any State or Local income taxes you pay, whether from paycheck withholding or estimated tax payments made January 1, 2008 to December 31, 2008. If you make estimated tax payments, consider making your January payment early, before December 31, and it counts for 2008!

Line 13, Qualified Mortgage Insurance Premiums

We all know that mortgage interest is deductible, but you can also deduct your mortgage insurance premiums! Your lender reports the total insurance premium paid in Box 4 of Form 1098, sent out at year’s end.

Line 21 Unreimbursed Employee Expenses

The deductions here aren’t necessarily “overlooked” by taxpayers, but since this is a catchall for all employment-related expenses, people often forget some. This is where being organized saves the day. Be sure you include any job-hunting expenses, and union dues, and remember Form 2106, Employee Business Expenses must be filed with the return if you are including vehicle expenses, overnight travel and meals.

Line 23 Other Expenses subject to 2% AGI floor

The most common types of deductions on this line are investment expenses. But make sure you include any legal expenses associated with obtaining taxable income, custodial fees paid for a trust account, and casualty and theft losses on property used in performing services as an employee.

Taxes are nothing to be afraid of, especially when you think of all that “buried treasure” just waiting to be found!

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