Tax day, April 18, quickly approaches, so now’s the time to familiarize yourself with what is and what is not deductible when it comes to the things you own. And, better yet, some purchases can win you tax credits, which are far more valuable than any deduction can be. A deduction lets you reduce the amount of income that gets taxed, so if you’re in the 25 percent tax bracket, a deduction saves you 25 cents on the dollar. A tax credit is a dollar-for-dollar reduction of your tax bill.
Here’s what’s deductible, from A through V:
Appraisal fees for casualty and theft losses. Deduct appraisal fees paid to determine the amount of a casualty loss as a miscellaneous itemized deduction.
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Automobile. If you bought a car in 2010, you can add the sales tax amount paid on the vehicle to your state sales tax deduction, if you itemize and choose to deduct sales taxes rather than state income taxes. If the sales tax rate on the car or truck is higher than the general sales tax rate, you can deduct only the amount of tax due at the general sales tax rate.
Boats. As with cars, if you bought a boat in 2010, you can add the sales tax paid on it to the IRS table amount in deciding whether to deduct income or sales taxes on your 2010 federal return. If the sales tax rate on the boat is higher than the general sales tax rate, you can deduct only the amount of tax due at the general sales tax rate.
Company cars. Employers are required to report as taxable income to you the value of personal use of company cars. Among the approved methods of setting the value for 2010 are $1.50 each way if the car is used to commute between home and work, for example, or, for cars that cost $15,300 or less, 50 cents per mile. For personal use of more expensive cars, your employer is required to report higher taxable income, based on the amount it would cost to lease the vehicle.
Computer. It’s difficult to qualify to deduct the cost of a computer unless it is used in your business. However, if you use your computer to track investments and do your tax return, you may be able to depreciate part of the cost as a miscellaneous itemized expense. Such costs are deductible to the extent they exceed 2 percent of your adjusted gross income.
Diesel-car credit. Several clean-diesel automobiles qualify for a tax credit similar to the one available for gasoline/electric hybrids. Purchasers of a new 2010 Volkswagen Jetta sedan 2.0-liter TDI between July 1 and Dec. 31, 2010, for example, can claim a credit of $650.
Donation of car to charity. Your deduction is usually limited to the amount the vehicle is sold for by the charity.
Driving for charity. You can deduct 14 cents per mile for each mile you drove while performing services for a charity in 2010.
Driving to doctors. You can deduct 16.5 cents per mile for each mile you drove for medical-related travel in 2010 as part of your medical expenses. (For 2011 medical driving, the rate rises to 19 cents a mile.)
Homebuilding materials. If you itemize deductions, you can write off either the state and local income taxes you paid in 2010 or the state and local sales taxes, whichever gives you the bigger tax break.
Hybrid vehicle credit. A credit of as much as $2,200 is available to 2010 buyers of certain, but not all, hybrids. If you bought a hybrid in 2010, be sure to see if you’re eligible for this tax break. Vehicles purchased after Dec. 31, 2010, aren’t eligible.
Moving expenses. If a move is connected with taking a new job that is at least 50 miles farther from your old home than your old job was, you can deduct travel and lodging expenses for you and your family and the cost of moving your household goods. If you moved to take your first job, the 50-mile test applies to the distance between your old home and your new job. The deduction is allowed even if you do not itemize deductions. If you drive your own car, you can deduct 16.5 cents a mile for 2010 moves. (For 2011, the standard mileage rate for moving is 19 cents a mile.)
Personal property tax. You can deduct state and local taxes that are based on the value of personal property you own, such as an annual county tax on the value of your car. Sometimes this fee is included in what you pay to renew your license plate.
Safety deposit box fees. You can deduct such fees if you use the box to store taxable-income-producing stocks, bonds or investment-related papers and documents. This write-off is a miscellaneous expense, deductible only to the extent all your qualifying miscellaneous expenses exceed 2 percent of your adjusted gross income. You cannot deduct the rent if you use the box only for jewelry, other personal items or tax-exempt securities.
Sales taxes. If you itemize deductions for 2010, you can choose to deduct either city and state income taxes you pay or state and local sales taxes. This is a no-brainer for those who live in a state that does not impose an income tax … claim the sales tax deduction. You don’t need to keep all your receipts either. The IRS has a table with estimates based on your income, family size and where you live. Then you can add sales taxes paid on cars, boats, aircraft and other big-ticket items. Purchase of such items could lead some taxpayers in income-tax states to pay more sales tax than income tax.
Sales tax paid on leased vehicle. If you leased a vehicle in 2010, you are allowed to add any sales tax you paid on the transaction to the amount in the IRS sales tax table, if you choose to deduct sales taxes instead of income taxes on your federal return. If the state sales-tax rate on the purchase is higher than the general sales-tax rate, you can only deduct the amount of tax due at the general sales-tax rate.
Standard mileage rate for business driving. You can deduct 50 cents per mile for each mile you drove on business in 2010, plus parking and tolls. If your employer did not reimburse you the full 50 cents a mile for using your vehicle for your job, claim the difference as an employee business expense. For 2011, the rate is 51 cents a mile.
Vacation home. Mortgage interest on a second home is deductible, just as it is for your principal residence. Property taxes can be deducted on any number of homes. If you rent the place for 14 or fewer days during the year, the rental income is tax-free to you. If you rent it for more than 14 days a year, you must report the income but also may claim deductions for rental expenses.
Vehicle registration fees. Any fee you pay to register your vehicle is deductible on Schedule A as a personal property tax if the fee is based on a percentage of the vehicle’s value.
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