If ever there was a year to lookfor deductions to your tax bill, this is it. The reason? Millions of Americanswill be paying more because of higher tax levels imposed by Obamacare and theironically named American Taxpayer Relief Act of 2012. But even if you aren'tsubject to the higher rates, it still pays to get all the breaks you can.
PRIVATE MORTGAGE INSURANCE
The home mortgage interestdeduction is a perennial favorite of homeowners and while that deduction is nowon a phase out schedule for high earners, others may benefit from the privatemortgage interest deduction. PMI is an insurance policy that lenders require ifyou can't make a 20 percent down payment on a home. And, 2013 is the last yearyou'll be able to claim the deduction unless Congress changes its mind.
You'll find the amount of PMI you paid on your bank'smortgage interest form 1098. The break is available to homeowners who took outtheir mortgage after Jan. 1, 2007.
And, like a lot of deductions, this one has income phaseoutstoo. The sweet spot for this break is an adjusted gross income below $109,000.
CARING FOR A DEPENDENT PARENT. This is more complicatedthan it sounds, but if you can claim a parent as a dependent, you can save ontaxes. Your parent must live with you and get more than half of his supportfrom you. Keep in mind the parent's earnings must be less than the taxexemption level. The devil is in the details with this one and your shouldconsult a tax professional, but if you meet the requirements, you'll be able toclaim an added personal exemption on your income tax return.
An added plus, any medical expenses you pay for that parentcan contribute to the threshold for deducting medical costs. To meet thatthreshold, you have to spend 10 percent or more of your adjusted gross incomeon medical expenses. (That threshold increased from 7.5 percent last year.
COLLEGE LOAN INTEREST
Parents struggling with the highcost of education will find they can deduct up to $2,500 of annual interest onloans to pay for college. Income phaseouts exist, naturally, so high earnersmight want to consider taking out a home-equity loan instead, which in mostcases, will allow you to deduct interest.
HOME EQUITY LOAN INTEREST
You probably know thatmortgage interest is deductible. Interest on mortgage debt up to $1 million isdeductible, but phases out at higher income levels. Interest on home-equityloans totaling up to $100,000 also is deductible, no matter what you do withthe money.
If you were looking for a job last year asmillions of Americans were, the costs of that job search are deductible. Filethem under miscellaneous expenses when you file. You don't have to besuccessful to claim the deductions. If you do land a new gig, you can alsoclaim relocation expenses for the new job. Consult a pro to determine exactlywhat you can deduct.
There aremore deductions -- many more -- but you should be aware that some of them areIRS audit bait. Here are a few of the deductions that might get you a secondlook, if not an audit:
Whenit comes to deductions, one of the things IRS auditors keep in mind is just howyou stack up with other taxpayers. CCH Inc. recently calculated averagedeductions and while you shouldn't use these as a hard and fast guide to yourown tax return, it makes sense to have a general idea of what people in yourincome 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 charitablecontributions of $2,815. These households pay federal taxes of $6,111.
So thepoint, here, isn't to discourage you from the taking all the breaks that aredue you. In fact, I say take absolutely everything you are eligible for. TheIRS expects nothing less.