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As
part of your year end planning become familiar
with the type of expenses that are potentially
deductible and know where you currently stand.
MEDICAL EXPENSES. You and your spouse's, and
your dependents' not reimbursed medical expenses
are deductible to a certain extent. Deductible
items include your out-of-pocket expenditures
for eyeglasses, health insurance premiums, hospital
care, nursing services, prescription medications,
hearing aids, and doctors' and dentists' visits.
There expenses are only deductible in the year
paid. If you have enough medical to exceed the
AGI floor this is a good time to pay any outstanding
medical bills including needed dental work.
TAXES. All of your property taxes are deductible-
not just the property taxes for your primary
residence. Be sure you deduct taxes paid on second
and third homes, vacant lots, and raw land. Homebuyers
often must reimburse the seller for previously
paid real estate taxes at the time of closing.
Be sure to add any such reimbursements to your
itemized deductions for taxes
INTEREST.
You can include any points you pay to secure
a mortgage on your
new home in your
itemized deduction for interest, along with all
other qualified residence interest you pay. Interest
on up to $1 million of acquisition debt (for
a principal and/or second residence) can qualify
for the deduction. Home equity interest is also
tax deductible, subject to a debt ceiling. Elect
to amortize purchase points (deduct them ratably
over the loan term) if you don't like itemize
your deductions this year. "Investment" interest,
such as interest paid to securities brokers on
margins loans, is also deductible. However, the
investment interest deduction is limited to net
investment income, with any excess interest expense
deductible in future years subject to the same
limitation. Consumer interest, such as personal
loans, is generally not deductible.
CHARITABLE
CONTRIBUTIONS. Remember to get a year-end written
receipt and or other
substantiation & keep
your receipts during the year from charities
to which you donate $250 or more, because a cancelled
check alone is not enough evidence of your donation
for tax purposes. Sometimes you must file a special
form with your tax return when exceeding the
non-cash contribution limit. Taking a deduction
for a large gift may require an independent appraisal.
Contributing publicity traded securities instead
of cash can be a good strategy. If the securities
are worth more than you paid for them, such a
donation avoids capital gains tax while still
allowing you a deduction for the stock's full
value. However, if you have an investment that
has lost value, which in today's environment
is a common occurrence, you might want to sell
it and donate the cash proceeds so that you can
use the resulting capital loss to lower your
taxable income.
MISCELLANEOUS ITEMIZING DEDUCTIONS. There are
various other itemized deductions including fees
for personal investment and tax advice and not
reimbursed employee business expenses (work uniforms
or subscriptions to professional journals, for
example).
You can also deduct education expenses that
you incur to maintain or upgrade skills required
in your current job or because your employer
requires the education as a condition of retaining
your employment. The deduction for miscellaneous
and not reimbursed employee business expenses
is available only to the extent the combined
expenses exceed the 2003 AGI floor. If your income
is too high to allow a deduction every year,
consider doubling up on some expenses by paying
them every other year. Unless you are changing
fields or you have not held a job for a long
time, you can deduct the expenses of a job search
as miscellaneous itemized deduction. Deductible
expenses include amounts spent for resume preparation
and mailing and the costs of local transportation
or away-from-home-travel for interviews.
Itemized deduction limitation. Your itemized
deductions may be limited if your AGI is more
than an estimated threshold amount depending
on your filing status.
The purpose of this newsletter is to stimulate
thought for our clients and those professionals
we network with. One should consult with a qualified
taxation professional prior to implementing any
taxation planning strategies. If you are a mortgage,
insurance financial planning or real estate professional,
or legal professional receiving this newsletter
or know of one, please contact our office to
introduce yourself and your services to us. We
are always seeking to grow our referral network
and expose professional services to our client
base.
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