Don't Forget These Tax Deductions

45 million people use itemized deductions when they file their taxes, totaling almost $1 trillion in combined deductions. About twice as many people only claim standard deductions for a grand total of $500 billion. That means half as many people get twice the deductions and four times as much benefit.

That is quite a difference, but not all of it comes from regular deductions; some is derived from tax credits. Tax credits are often confused with tax breaks and deductions, but they are quite distinct.

1)Deductions subtract from your taxable income.

2)Breaks are reductions in the tax rates paid.

3)Credits are amounts added to your taxes paid balance. Credits provide the biggest benefit.

THE RECENT VEHICLE SALES TAX DEDUCTION

New vehicle purchases can incur a hefty sales tax. On a $20,000 car with a 5% sales tax, that would be $1000 just in taxes! Starting in 2009, sales taxes paid on new vehicle purchases can be deducted on federal taxes. This includes most types of common vehicles including cars, trucks, and motorcycles.

You qualify for the deduction whether or not it is itemized on Schedule A with your tax filing. While the full purchase price and/or cost of financing cannot be deducted, the full amount paid in sales tax is a deduction. There are some limitations involving time frames and income levels, so be sure to check with the latest IRS publications for accurate information.

JOB HUNTING DEDUCTIONS

This is one of the most overlooked deductions and only a small percentage of qualifying people claim it. With the ongoing trend of high unemployment, more individuals qualify for this deduction than ever before. The deduction is available whether or not you get the specific job you were seeking. Any costs directly related to the job search are deductible. This includes, but is not limited to, resume writing services, employment agency fees, transportation costs, job bank access fees, postage, and printing costs.

MILEAGE DEDUCTIONS

There are a large number of mileage deductions available. The two that have the most qualifying taxpayers are medical and charitable travel deductions. Miles traveled between home or work and the doctor's office or hospitals are all deductible at a rate of 24 cents per mile. Travel for the purposes of charity is deductible at a rate of 14 cents per mile. The availability and rate of mileage deductions can vary from year to year, so check the latest IRS publications to find which additional reductions are available to you.

RETIREMENT TAX CREDIT

Various tax incentives exist to promote retirement savings. This includes permitting pretax contributions and breaks for certain types of investment. One of the most valuable options is a tax credit for the initial investment in a retirement plan. As much as half of the first $2000 placed in retirement savings will be returned as a tax credit. Some restrictions and rate formulas apply, so review the most current information from the Internal Revenue Service.

These are just some of the many tax credits and deductions that may be available to you. As you prepare your taxes this year, be sure to check into what you may qualify for.