2012 Tax Deductions

On January 12, 2013, in Tax Tips, by Justin

Tax deductions reduce your taxable income (which means you pay less in taxes). For the 2012 tax year, there are many tax deductions available. The good news is, an estimated 95 percent of tax payers will get a tax break for 2012!

Here is a list of deductions for 2012:

  • Home Mortgage Interest. If you own a home and have a mortgage, in most cases you can claim the home mortgage interest deduction for the interest you pay on a home loan. To qualify, the mortgage must be on your primary residence (where you live). Interest paid on a second home can usually be claimed as well. As long as you have an ownership interest in the home and are obligated to make payments on the loan, you can also take a tax deduction on a second mortgage or a home equity loan. Your mortgage lender(s) will issue a form 1098 for each home loan you have, which shows the total interest paid throughout the year. Mortgage insurance premiums paid also qualify, and you can deduct any “points” paid if the loan was originated during the tax year (including any seller-paid points).
     
  • Income Taxes Paid. This is one tax deduction that is typically overlooked, yet will definitely save you some money. As it currently stands, a you can deduct state and local income taxes paid during the tax year except for one condition. You cannot deduct state and local income taxes paid on income that is exempt from federal income tax, unless the exempt income is interest income. You can also deduct withheld taxes and quarterly estimated tax payments.
     
    It’s important to note that taxpayers cannot deduct federal income taxes paid or employment taxes that were withheld for the year including Social Security, Medicare and Railroad Retirement taxes.
     
  • Real Estate Taxes Paid. You can claim a tax deduction for any real estate taxes paid on any state, local or foreign taxes so long as they are based on the assessed value of the real property. However, taxes charged for local benefits and improvements that increase the value of the property aren’t deductible.
     
  • Charitable Donations. If you donate money or goods such as clothing, home furnishings or electronics to a qualified charitable organization, you’re generally entitled to a charitable tax deduction… but you must keep very accurate records. You can also take a tax deduction if you give property to a qualified organization and can usually deduct the fair market value of the donated property at the time of the contribution. Keep in mind that your deduction for charitable contributions is generally limited to 50% of your adjusted gross income (AGI) but in some cases 20% and 30% limits may apply. Rules vary depending on what you donate. If you have questions, be sure to consult with a professional.
     
  • Medical and Dental Expenses. The bad news is, health care costs are constantly on the rise. The good news: the tax code allows you to deduct expenses incurred in the diagnosis, cure, mitigation, treatment or prevention of sickness and certain health conditions. In most cases this includes the costs of physicians, surgeons, dentists and other medical practitioners. It also includes medical equipment, supplies and diagnostic devices prescribed by a physician. You may also deduct the cost of health care insurance premiums and expenses related to getting to and from medical/dental-related appointments. NOTE: you cannot deduct the cost of health supplies such as vitamins, supplements or other preventative care not diagnosed by a physician.
     
    You may also deduct expenses you paid for your spouse or your dependent(s). You have the option of deducting either when the services were provided or when you paid for them.
     
    Another IMPORTANT NOTE: medical and dental expenses are subject to what’s called the ”7.5% limit.” What this means is that you can only deduct those expenses which exceed 7.5% of your adjusted gross income (AGI). The math is a bit tricky, but all major tax software can easily handle the calculations for you.
     
  • Alimony. If you pay alimony, you can deduct it on your tax return. For the payments to be qualified as alimony, the alimony must be written out in your separation or support agreement, a stipulation of settlement in your pending divorce, or a court order or judgment.
     
  • Miscellaneous Deductions. Miscellaneous deductions are all the deductions that don’t fit into other categories of the tax code. There are two types of miscellaneous deductions, those deductions subject to the 2% limit and those that are not. The 2% limit allows you to deduct only the amount of expense that is over 2% of your adjusted gross income. Miscellaneous deductions subject to the 2% limit fall into three categories: unreimbursed employee expenses, tax preparation fees, and other expenses.
     
    Unreimbursed employee expenses include:

    • Business bad debt of an employee
    • Business liability insurance premiums
    • Damages paid an employer for breach of an employment contract
    • Depreciation of a cell phone or computer that your employer requires you to use with your work
    • Dues to a chamber of commerce if membership helps you do your job
    • Dues to professional societies
    • Educator expenses that are more than you can deduct as an adjustment to income
    • Home office or part of your home used regularly and exclusively in your work
    • Job search expenses in your present occupation
    • Laboratory breakage fees
    • Legal fees related to your job
    • Licenses and regulatory fees
    • Malpractice insurance premiums.
    • Medical examinations required by an employer
    • Occupational taxes
    • Passport for a business trip
    • Repayment of an income aid payment received under an employer’s plan
    • Research expenses of a college professor
    • Rural mail carrier’s vehicle expenses.

    Tax preparation fees include:

    • Tax preparation expenses accrued in the year that you pay them. You can deduct tax software or tax filing charges. However, you cannot deduct the convenience charge for paying your tax by credit card.

    Other Expenses include:

    • Appraisal fees
    • Casualty and theft losses
    • Clerical help and office rent
    • Depreciation on home computer
    • Excess deductions of an estate
    • Fees to collect interest and dividends
    • Hobby expenses
    • Indirect deductions of pass-through entities
    • Investment fees and expenses
    • Legal fees related to producing taxable income
    • Loss on deposits in an insolvent or bankrupt financial institution
    • Loss on traditional IRA’s or Roth IRA’s
    • Repayments of income
    • Repayments of Social Security benefits
    • Safe deposit box rental
    • Service charges on dividend reinvestment plans
    • Tax advice fees
    • Trustee’s fees for your IRA

    Deductions not subject to the 2% limit include:

    • Amortizable premium on taxable bonds
    • Casualty and theft losses form income-producing property
    • Federal estate tax on income in respect of a decedent
    • Gambling losses up to the amount of gambling winnings
    • Impairment-related work expenses of persons with disabilities
    • Repayments of more than $3,000 under a claim of right
    • Unrecovered investment in an annuity.

So what sorts of things are NOT deductible?

Try as you might, the IRS will not allow you to claim these as a deduction on your taxes:

  • Adoption expenses (but they might qualify you for the Adoption Tax Credit)
  • Broker’s commissions for IRA or other investment property
  • Burial, funeral, and cemetery expenses
  • Campaign expenses
  • Capital expenses (but you can depreciate business property)
  • Check-writing fees (non-business)
  • Club dues
  • Commuting expenses (but you could get these from your employer as tax free income)
  • Credit card fees (non-business)
  • Expenses of earning or collecting nontaxable income
  • Fees and licenses
  • Federal income taxes
  • Federal estate taxes
  • Fines and penalties
  • Gift taxes
  • Health spa expenses
  • Hobby losses
  • Homeowners’s or renter’s insurance
  • Home repairs
  • Home security system (unless you have a home office)
  • Illegal bribes and kickbacks
  • Investment seminar and convention expenses 
  • Legal fees and expenses (non-business)
  • Licenses (marriage, driver’s, etc.)
  • Life insurance premiums (unless part of an alimony payment)
  • Lobbying expenses (and charitable contributions used for lobbying expenses)
  • Losses from the sale of your home, furniture, car, or other personal property
  • Lost or misplaced cash or property
  • Lost vacation time
  • Lunches with co-workers
  • Meals while working late (unless they are business entertainment expenses)
  • Medical expenses claimed as business expenses (except for medical exams required by your employer)
  • Membership dues (not including professional societies)
  • Personal disability insurance premiums
  • Personal, living, and family expenses
  • Pet tags and registration fees
  • Political contributions
  • Professional certification, accreditation, and licensing fees
  • Professional reputation improvement expenses
  • Relief fund contributions
  • Rent payments
  • Residential telephone service
  • Stockholders’ meeting attendance expenses
  • Tax penalty payments
  • Travel expenses for another person
  • Voluntary unemployment benefit fund contributions
  • Wages never received
  • Wristwatches (even if related to a job requirement)

Bear in mind that this is not an all-inclusive list. Your best bet is to use one of the many popular free tax software programs on the market. The developers of these apps go to great lengths to include all currently available tax deductions and tax credits that the IRS allows, and they walk you through the whole process from start to finish. It’s really like having the best accountants at your fingertips and I highly recommend it.

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