BOSTON (CBS) – Tax deductions lower your taxable income. Tax credits provide a dollar-for-dollar reduction of your income tax liability.
Health Insurance Premiums: If you are self-employed, 100% of the premiums are deductible. For other tax payers, if you have paid any health insurance premiums last year they become part of your medical expenses and your medical expenses are deductible after they have reached 10% of your income. If you are over 65 it will remain at 7.5% of income thru 2016.
Long Term Care Insurance Premiums: Part of the cost of the insurance premium will be treated as a medical expense and will be deductible once your medical expenses exceed 10% of your income. The older you are the larger the deduction for LTC insurance. Check IRS publication 502.
Contributions: Cash is always appreciated but in order to get a deduction you need to document your contribution. Rules require either a bank record that supports the donation or a written statement from the charity if the contribution is more than $250.
Noncash Contributions: Remember around Christmas when I suggested you take your old stuff to the Goodwill and get a receipt. Find the receipt. People forget about the noncash contributions they have made during the year. The receipt reminds you that you did donate all of that stuff to the Goodwill. You can no longer claim deductions for used clothing and “household goods” that are not in “good” condition or better. Check the Goodwill’s website to get a list of suggested deduction amounts.
Often overlooked are the contributions you made with your credit card. Look for those receipts as well.
The Savers Credit: Congress wanted to encourage lower income wage earners to start saving for retirement. So they came up with a tax credit when you contribute to your retirement plan. This tax credit could help you offset the cost of the first $2,000 contributed to an IRA, 401(k) and other retirement plans. There are income limits.