Ax Your Taxes - Part Two

In Part One of this article I explained how important it is to keep good records throughout the year, so that when tax time rolls around you can kick back and relax knowing that your work is already done. In this section I will give more specific information about the deductions you can take on Schedule A of your Form 1040.

Medical Expenses

In order to write off any medical costs, you must be able to break a ceiling of 7.5% of your Adjusted Gross Income (AGI). I always thought that only someone with an incurable disease could spend that much on medical bills, but I found that running three preschoolers to the pediatrician can do the trick.

First of all, you can write off your health insurance premiums if they are paid for with pre-tax dollars. Check your W-2 to see what appears in Box 8. If it is empty, you are out of luck, but if a figure appears there, that amount is tax deductible and will give you a good start towards meeting that 7.5$ threshold.

Next, every time a member of our family visits the doctor, I record the copay amount, date, and check number in my tax notebook. Ditto for the dentist. I also note every medical, dental, or hospital bill which I pay which is not covered by our insurance. If you pay for preventative health care, like a Pap smear or a mammogram, or for visits to the acupuncturist, chiropractor, or orthodontist, those are all tax deductible. Additionally, I use my tax notebook to track the date and non-covered amount for every prescription that we have filled. You can also write off prescription glasses and contact lenses.

Finally, I track the round trip mileage from our house to every doctor's office, dentist's office, hospital emergency room, or pharmacy that we visit. This mileage is deductible at a rate of 12 cents per mile. I also record my toll and parking fees.

Charitable Donations

There is no ceiling to meet for this category, so you can deduct everything you donate. However, you will want to track your cash and non-cash donations separately.

I donate to some charities by auto-draft from my checking account each month. I don't worry about recording those in my tax notebook, because those charities send me a statement at the end of the year. However, for cash (and check) donations to my church, my children's school (which is a non-profit), or the Salvation Army bell ringer, I make sure the write the amount and date in my notebook.

As for non-cash donations, be sure to get a receipt. Most charities will leave the amount field blank for your to fill in. Don't just say to yourself, "This bag of used clothing is probably worth about $15". Itemize the donation and figure out what the contents would cost in a consignment shop. You should have a list like this: 28 baby outfits at $2 each, 4 pairs of baby shoes at $1 each, 25 pairs of baby socks at 20 cents each, 5 maternity outfits at $15 each, one Snugli for $10, 5 baby blankets at $2 apiece. Before you know it, your "$15 bag of clothing" will be worth $150!

You cannot deduct the time that you spend volunteering, but you can write off your mileage and any out-of-pocket expenses. If you help out at the church nursery, record your mileage in your tax notebook. It is deductible at 14 cents per mile. If you buy anything that you cannot use for another purpose, like a Scoutmaster uniform, to use in your volunteer activities, keep the receipt and write it off!

Other Categories

You will need to break a ceiling of 2% of your AGI with the total amount of these next three categories to take a deduction. Keep separate records for each category, however, since you will have to itemize them on Schedule A.

Tax Preparation Fees -

When listing your tax preparation fees, think about any expenses you may have in addition to paying your accountant. Did you buy Taxcut or Turbotax? Did you pay to make copies of your returns before mailing them off? What about long-distance calls or postage? If you mail you taxes to the IRS, use Certified Mail and save the receipt. And don't forget about any tax guides you may have purchased at the book store.

Non-Reimbursed Employee Expenses -

Whether you can take advantage of this category will depend largely upon your or your spouse's profession. My husband is in law enforcement, and last year he spent his own money on a holster, a special vest with lots of equipment for his equipment, batteries for his pager and a new suit. The suit had be especially cut to accommodate all of the gear beneath and was therefore work related (i.e. he couldn't wear it to church). Consequently, we were also able to write off dry cleaning for the suit. We also deducted the extra cost of having an unpublished telephone number and caller ID, since we wouldn't need those if he were in another profession. My husband also carries liability insurance for his job and pays union dues, which are also tax deductible.

Put some thought into what you spend money on in order to advance your career. For example, memberships in clubs or organizations that require dues, and will allow you to make professional contacts or keep informed of advances would qualify. Any training to improve yourself in your current field, including the cost of tuition, books, and mileage between work and the school are tax deductible. Finally, if you or your spouse make a career change, the costs of the job search, including the cost of mileage to interviews and resumes is all tax deductible.

Investment Related Expenses -

Any expense that you incur to help you mange your money better is tax deductible. You can write off the cost of renting a safe deposit box, subscribing to a financial newsletter, or using a financial planner. You can even deduct the cost of that Quicken software program or that issue of Money magazine that you bought. Your banking fees and your IRA custodial fees are tax deductible, and don't forget to write off the cost of your "tax notebook"!

The point is that little things can add up in a big way, and the task of tracking all these little expenses can be made a lot easier by staying on top of it all year, rather than waiting until April 14th! Think of tax time as a game that you want to win, and you won't begrudge the time invested in recording all these expenditures. In fact, you'll pat yourself on the back next April!