There’s no law or ethics rule that says you have to pay more in taxes than is legally required. You should make the most of every credit and deduction that’s coming to you. This year, there are a lot of new write-offs in addition to a host of existing deductions you may have overlooked before. Maybe you can still trim your taxes for 2009.
If you don’t itemize, don’t worry
Many older taxpayers find they don’t have enough deductions to justify itemizing them, especially once they’ve paid off their mortgage. That’s not such bad news. In the first place, anyone over 65 gets an extra $1,400 ($1,100 each for spouses filing jointly) added to the $5,700 standard deduction ($11,400 for joint filers) they can take instead of itemizing. Here are a few mostly new, above-the-line deductions that filers may be able to add to the standard deduction:
Property taxes. You can deduct up to $500 ($1,000 for joint filers) of your state and local property taxes by claiming it on Form 1040. (If you do itemize, you can deduct the full amount of the property tax.) “This provision affects seniors most,” says Dustin Stamper, who works for the accounting firm Grant Thornton in Washington, D.C. “That’s because many older people own their homes outright and no longer have a mortgage interest deduction, but they still pay property taxes.”
Car taxes. If you bought a car between Feb. 17 and Dec. 31, 2009, you can deduct the sales tax on up to $49,500 of the car’s purchase price. You get this break even if you already took advantage of the Cash for Clunkers rebate program when you bought your car. This deduction phases out for incomes above $125,000 ($250,000 for joint filers.)
Homebuyer’s credit. You don’t have to itemize to get cash back if you bought a home last year, but the rules changed partway through the year and are complicated. If you already were a homeowner and bought a new principal residence after Nov. 6, 2009, you may qualify for a $6,500 credit. If you were a first-time homebuyer, there’s an $8,000 credit. In either case, you have until April 30, 2010, to sign a contract and take this homebuyer’s break on your 2009 tax return. Various income and home-value limits apply to different dates in 2009, so check the details at the IRS website to see if you qualify and find out how to claim your cash.
Teacher’s supplies. Did you spend your own money to buy crayons, decorations, calculators or books for your classroom? Even non-itemizers get a $250 dollar-for-dollar credit.
Cash for your troubles
If you lost your job, lost money in the stock market (and who didn’t, in 2008 or 2009?), got robbed or saw your house hit by a natural disaster, there’s a tax break for you.
Capital losses. If you sold any stocks, mutual funds or other securities for a loss in 2009, you can use that loss to cut your taxes. It can offset any capital gains you received, and up to $3,000 of ordinary income once you’ve zeroed out your gains. If you have losses left over from securities you sold in 2008, don’t forget to carry over any losses you weren’t able to use on your 2008 return. They’re still usable in 2009.
Jobless benefits. If you were unlucky enough to have qualified for them, the first $2,400 of your unemployment benefits were tax-free in 2009.
Casualty losses. Even if you don’t itemize, you can deduct losses due to thefts and natural disasters. You can find the list of federally declared disaster areas at the website of the Federal Emergency Management Agency. If your crisis made that list, you can deduct all of your losses (minus $500).
Bonus: If your property was damaged by this February’s monster East Coast snowstorms and is in a qualifying federal disaster area, you can take those losses on your 2009 return, reports tax research and consulting firm CCH.
Write off Mom and Junior
Many of you probably pay plenty to be a full-fledged member of the sandwich generation, helping your parents and your kids at the same time. Some of those expenses are deductible.
If your parent earns more than $3,650 per year (not counting Social Security), you can’t claim him or her as a dependent, says Maureen McGetrick, a tax partner at BDO in New York. But you may be able to claim your parent as a medical dependent if you (along with your siblings) provide more than half of his or her support. That would entitle you (or whichever sibling you, as a group, designate) to deduct your parent’s medical expenses as your own. That would include many expenses of an assisted living facility. Check with the facility about how much of the monthly payment may be deductible.
Kids in college? That’s great, but expensive. For 2009, thanks to the new American Opportunity Tax Credit, you can claim a credit of $2,500 per student per year for their first four years of college. This credit phases out at incomes above $80,000 ($160,000 for joint filers).
It pays to be good
Of course, you can deduct the dollars you contributed to bona fide charities last year. But if you’re charitably inclined and itemize your deductions, there’s a good chance you can cut your taxes in other ways.
Haiti help. If you sent a donation this year to help the earthquake-stricken in Haiti, you can deduct it on your 2009 taxes, thanks to a recently enacted law. This applies to any Haiti-bound donations made in January and February of 2010—including those cellphone-texted donations.
Volunteer mileage. Are you driving back and forth to the hospital, thrift shop or soup kitchen every week? You can deduct any unreimbursed mileage at 14 cents a mile.
Gifts from your IRA. “Here’s a bonus for many older taxpayers,” says Samler. If you are over 70 1/2 and made a direct donation of up to $100,000 to charity from your individual retirement account in 2009, you don’t have to declare the amount as a taxable IRA distribution. That offers non-itemizers the same benefits as the charitable deduction available to those who make a donation from IRA funds and itemize their expenses.
Cupcakes, yarn, you name it. Did you make your special brownies for the church bake sale, or knit scarves for soldiers? You can’t deduct your time, but you can deduct your supplies, says I. Jay Safier, a principal with the Manhattan accounting firm Rosen Seymour Shapss Martin & Co.
All that stuff. You can deduct the value of clothing, furniture, business equipment and more that you give to charity. Just make sure the items are of good quality and usable by the recipient, that you document the gift, and that you’re assigning a reasonable value to it. Use a guide, such as the one provided by the Salvation Army or It’s Deductible, the free guide offered by TurboTax. There’s even an iPhone app for that, called UDoGood.
Healthy deductions for all
There’s a mother lode of deductible health-care expenses allowed by the IRS, and the best way to make sure you don’t miss them is to read the exhaustive list in IRS Publication 502. You can deduct only amounts that exceed 7.5 percent of the adjusted gross income that’s calculated on your Form 1040. Once you top that hurdle, you can deduct:
Insurance costs. Don’t forget that you can deduct premiums for Medicare Parts B and D, as well as long-term care insurance. If you’re between 51 and 60, you can take $1,190 a year for qualified long-term care premiums. If you’re between 61 and 70, you can take $3,180. If you’re 71 or older, you can take $3,980.
Noncovered health care. If you paid out of pocket for dental work, hearing aid, eye care (yes, even those pricey trifocal sunglasses), or chiropractic services, they are all deductible.
Miscellaneous medical expenses: Everything from ambulance travel to bandages and home handrails. Read that IRS list!
A grab bag of goodies
Finally, there are other random write-offs that defy categorization but may be worth dollars to your bottom line.
Lottery tickets. Did you have significant gambling winnings in 2009? If so, you have to declare them as income. But you can deduct against those winnings all of your gambling losses, including lottery tickets you bought.
Energy improvements. If you installed energy-efficient items such as skylights, a water heater, or new or replacement doors and windows, you get a tax credit of 30 percent of the cost, up to a combined total of $1,500 for 2009 and 2010. So if you didn’t max this credit out in 2009, there’s still time to go shopping in 2010. Check out the Department of Energy’s Energy Star website for the details.
And finally, don’t forget that you can claim the cost of good financial advice and tax preparation help as a miscellaneous deduction. That seems only fair, doesn’t it?
Free help from AARP
Need more help? AARP offers free volunteer-run tax preparation help through its Tax-Aide program.
Linda Stern is a freelance journalist who writes about financial issues.