- Contribute to an IRA or retirement plan. If you don’t actively participate in an employer-sponsored plan, you can deduct IRA contributions of up to $4,000 ($4,500 if you’re age 50 or over) made by April 17. Similarly, self-employed taxpayers can lower their adjusted gross income with a contribution to a SEP, SIMPLE or Keogh plan (tax return extension time included).
- Compare state sales tax to state income tax. For 2005 returns, you can deduct either your state sales tax or state income tax. Don’t automatically assume you should deduct your state income tax. The deductible state sales tax amounts, which are listed in state-by-state IRS income tables, also allow you to add on the sales taxes paid for big-ticket items like cars and boats.
- Offset taxable bond interest. You can deduct the amortized premium for taxable bonds on Schedule B of your Form 1040.
- Elect out of installment-sale reporting. That is the smart tax move if you’re sitting on capital losses this year that are large enough to sop up the full amount of gains from an installment sale.
- Write off your personal bad debts. You can deduct unrecovered amounts from personal loans that have become totally worthless. Claim the write-off as a short-term loss on Schedule D.
- Bypass tax breaks for certain capital gains and dividends.You might give up the preferential tax rate for longterm gains if this significantly increases your deduction for investment interest expense. Compare the results first.
- Pile up miscellaneous expenses. Most people don’t give them a second look, but you can deduct many odds and ends to the extent that the total exceeds 2 percent of your AGI. The list includes job-hunting expenses, tax advisory newsletters such as Small Business Tax Strategies and even your tax adviser’s fee for preparing your return.
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