Have you filed your taxes yet this year? I originally put together my return using TurboTax about a month ago, but I went back over it to make sure I didn’t miss any deductions.
This is the first year I’ve owned a home, meaning it was also the first year that I’ve itemized. It’s amazing how much more complicated your taxes get when you itemize! I found that I overlooked quite a few deductions my first time through.
If you haven’t checked out Kiplinger’s list of 19 Most-Overlooked Tax Deductions, I highly recommend it! I had totally missed #9 on the list, which ended up saving me $248 alone!
I thought I’d do a rundown of all the ways I was able to whittle down my taxes, in case it might help some of you. There are many deductions I wouldn’t have known without TurboTax, and some that TurboTax didn’t even catch. Some of these tips are especially helpful for AZ residents.
Eight Deductions That Will Help You Save on Your 2009 Taxes:
If you itemize your taxes, skim this list really quick and make sure you’re not overpaying your taxes. If you’re a fellow Arizonan, pay special attention to tips 1-4, as these deductions are state specific!! I used the refund monitor in TurboTax to gauge how much money each deduction saved me, and have noted this as well.
1) Vehicle Registration Fees. In Arizona, you can deduct the Vehicle License Tax you paid on your cars. This is listed as VLT on your Title and Registration Application. You can log in right HERE to find out how much you paid in VLT in 2009 for Arizona. I paid $33.10 in VLT (yay for super old cars and cheap registration/insurance!), which saved me $12 in Federal taxes and $2 in Arizona taxes.
2) Medical and Dental Expenses. Arizona law differs from federal law for medical deductions. For federal taxes, you must have more medical expenses than 7.5% of your adjusted gross income to take a deduction. By contrast, Arizona allows you to deduct 100% of qualified medical expenses. This is awesome! I was able to deduct my insurance premiums and co-pays and my contacts. My total medical expenses came to $1437, which saved me another $58 in Arizona taxes!
3) Travel to Medical Appointments. Technically, this falls under #2, but I wanted to call it out specifically since it’s so often overlooked. Since AZ allows you to deduct 100% of your medical expenses, don’t forget to include your travel to and from appointments! You get to deduct $0.24/mile. This can add up to several hundred dollars if you travel a large distance and/or have lots of appointments. When you gather paperwork for doc/dentist visits, make note of the number of visits to each. Then use Mapquest to find out the one-way mileage, double it, multiply by the number of visits, and multiply by $0.24. I drove 248 miles for medical appointments last year, which reduced my Arizona taxes by $3.
4) 529 Contributions. Arizona is one of the few states that allows you to deduct contributions to ANY 529 college savings plan, and not just a state specific plan. Through 2012, Arizona taxpayers may deduct contributions to any 529 plan of up to $750 for a single or head of household or $1,500 for a married couple per year. We’re one of only 5 states (Pennsylvania, Arizona, Maine, Kansas and Missouri) that have this privilege! I had $250 in contributions to my Ohio CollegeAdvantage 529 plan last year, which reduced my Arizona taxes by $11.
5) State Taxes You Paid on Last Year’s Return. I paid $841 in state taxes last year, and initially I completely overlooked this deduction. This saved me an additional $212 in Federal taxes and $36 in Arizona taxes!
6) Loan Origination Fee or “Points” Paid at Closing. Now listen up, first-time homeowners. Everyone knows that they can deduct their mortgage interest payments, and most people are probably aware that they can deduct points paid to buy down their interest rate. All these items will be summarized in Form 1098 sent out by your lender, which makes them easy to deduct. The loan origination fee, however, can be easily overlooked when you’re filing your taxes, since not all origination fees are called out explicitly on the Form 1098.
- The loan origination fee is a fee paid by the borrower for the privilege of obtaining a loan, either to the lending institution or to the mortgage broker. It is a tax deductible amount, either 100% during first year of a purchase, or spread over life of loan for a refinance. This amount is based on a percentage of the total loan amount, with 1% or 1 “point” being a common charge. It is usually located on line 801 of your HUD-1 closing statement .
- Your origination fee is deductible as long as it was used to obtain a mortgage and not paid in lieu of other fees, such as attorney or appraisal fees. The IRS specifically states that if the fee is one lump-sum charge for items that would normally be itemized on a settlement statement, such as notary fees, preparation costs, and inspection fees, it is not deductible. See IRS Publication 530, Tax Information for First-Time Homeowners, for more information.
- I couldn’t figure out how to enter this in the step-by-step mode in TurboTax, so I had to go in to the worksheets and actually manually enter the loan origination fee for it to show up. My HUD-1 statement clearly calls out a Loan Origination Fee of $770.12 due to the broker on Line 811, which is equivalent to 0.3% of the loan (not bad! Less than half a point). Deducting the loan origination fee saved me $187 in Federal taxes and $33 in Arizona taxes.
7) Making Work Pay Credit. This credit is part of the 2009 government stimulus plan, and I probably wouldn’t have known to file for it had I not used TurboTax. It is equal to 6.2% of your earned income, with a maximum credit of $400 if you’re single or $800 if you’re married filing jointly. If your adjusted gross income is more than $75K ($150K on a joint return), your credit is reduced by 2% of the excess. It is good for 2009 and 2010, and you need to file the brand-new Schedule M to claim it. I received a Making Work Pay Credit of $118. A credit is a dollar for dollar tax reduction on your bill (much more valuable than a deduction), so this reduces my Federal taxes directly by $118.
8.) Charitable Contributions. Since I’ve never itemized, I never got to deduct my donations to charity before. If you’ve moved recently or are planning to move, chances are that you’re going to be giving away a lot of excess. I know I gave away half of my (unused) wardrobe so I wouldn’t have to pack it all. I’ve found that TurboTax’s online program “ItsDeductible” is really helpful in tracking the value of what you donate. It values your donations based on eBay market data. Best of all, it’s FREE to use year-round! Just remember to keep your receipts. Also, if you drove your car for charity in 2009, remember to deduct 14 cents per mile. Deducting my donations to charity saved me another $87 in Federal taxes and $18 in Arizona taxes.
The Total Tally:
These 8 deductions saved me $616 in Federal taxes and $158 in Arizona taxes, for a grand total of $774 in tax savings!!