Many expenses you are likely to incur during the year are perfectly legitimate tax deductions. They can reduce the amount you'll owe, or bump up your refund.
These commonly overlooked deductions were compiled by CCH Inc., a leading provider of tax law information, based in Riverwoods, IL, and The Ernst & Young Tax Guide 2006.
- Moving expenses. The expenses of a job-related move are deductible. To qualify, your new workplace must be at least 50 miles farther from your old home than was your previous workplace.
- Student loan interest. If you decided to go back to school to hone your job skills or bone up on investing and finances and paid interest on qualified education loans, you may claim a deduction for the interest, up to $2,500. The deduction is phased out for individuals with an adjusted gross income of $50,000 to $65,000.
- Alimony. Did you pay alimony to your spouse last year? If so, it is deductible, including back alimony in the year when it is actually paid. But not all payments to an ex, such as property settlements or child support, qualify as alimony.
- Alcohol- and drug-abuse treatment at a center, including meals and lodging.
- Appraisal fees for charitable donations or casualty losses. These fees that you pay to determine the fair value of donated property aren't deductible as contributions to the charity, but you can claim them as miscellaneous deductions on Schedule A of Form 1040.
- Job hunting -- that is, the costs associated with looking for a new job in your current occupation. These can include everything from the bill for printing up a new resume to travel and transportation costs incurred in the search for a new job. You can't, however, deduct your expenses if you are hunting for a job for the first time.
- Investment advisory fees. You are allowed to deduct investment fees or trust administration costs that you pay for managing your investments that produce taxable income.
- Legal expenses. You can deduct tax advice related to your divorce if your accountant or attorney specifies in her bill that that is what you were billed for. You can also deduct any legal fees you may have rung up trying to obtain or collect alimony.
- Early withdrawal penalty of savings accounts. If you were strapped for cash and had to tap into a money market or certificate of deposit account that had a penalty for early withdrawal, you can deduct the entire penalty shown on line 33 of Form 1040 even if it exceeds the amount of your interest income.
- Fees for a safe deposit box to hold investments, such as stock certificates.
- Dues for labor unions.
- Health aids. You can deduct payments for contact lenses, eyeglasses, hearing aids, crutches and birth control pills.
- Home sale costs. Specifically, commissions and closing costs on the sale of property are deductible.
For more information on what can be deducted, see the IRS Website.