Six suggestions for tax savings

This year, you have the option of deducting your state sales tax or your state income tax. Which should you take?

While this deduction will mainly benefit taxpayers with a state or local sales tax but no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming), it may give a larger deduction to any taxpayer who paid more in sales taxes than income taxes. For example, you may have bought a new house, car, motor home or boat, which boosted your sales tax total, or you claimed tax credits, thereby lowering your state income tax.

If your state levies both, compare your state and local income tax with the IRS sales tax table in Publication 600 for your state. To get the forms, call the IRS at 800-829-3676.

Medical expenses
Most people don't get a medical deduction because your medical expenses need to exceed 7.5 percent of your AGI before you are allowed to deduct them. So if your income is $100,000 and you have $10,000 in eligible expenses, you can deduct expenses above and beyond $7,500.

That's a high hurdle, but according to Cindy Hockenberry, tax information analyst for the National Association of Tax Professionals, the IRS is becoming more generous about what can qualify. “Now it allows weight loss programs, smoke cessation programs, even a health club membership if prescribed by your doctor, to qualify.”

Other approved expenses include premiums for long-term health care insurance, mileage to and from appointments, over-the-counter medication, contact lenses, prescription birth control and fertility treatments.

Miscellaneous expenses
Like it sounds, this category includes everything from business expenses to gambling losses. Your total miscellaneous expenses must exceed 2 percent of your adjusted gross income before you can start tallying these deductions. They include:

• Gambling losses: If you won big in Las Vegas, you have to pay taxes on your winnings, but you can offset some of your gains with gambling losses. "People don't realize that their gambling losses are deductible," said Hockenberry.
• Job search expenses: If you were job-hunting last year, you can deduct most expenses related to your search, including the cost of resumes, phone expenses, postage, career counseling and travel to and from your interviews. Forget about deducting your interview suits – the only clothing deduction allowed is for a work uniform.
• Investment expenses: These include everything from brokerage and IRA account-maintenance fees to safe-deposit boxes and subscriptions to investment publications.
• Tax return preparation: Two main benefits of hiring an accountant or using tax software to file your return -- not only will you have more of a chance to claim deductions you might have otherwise been unaware of, the cost of filing your taxes is yet another deductible miscellaneous expense.

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