In the U.S., there are two types of tax deductions: standard and itemized. Taxpayers must choose one or the other, but cannot take both.

 

Most taxpayers file for a standard deduction, which is a fixed, non-itemized deduction amount subtracted from the tax filer’s gross income, depending on his or her domestic status: single or married filing separately; married filing jointly or qualified widow(er); or head of household.

 

Taxpayers should only file itemized deductions if they have enough allowable items to beat the standard deduction amount. Itemized deductions, however, may be more likely to attract IRS audits than a standard deduction amount.

 

Note that there are above-the-line deductions that you can take even if you choose a standard deduction. If you qualify, these may include student loan interest up to a certain amount, job relocation expenses, and traditional IRA contributions. These types of deductions may be especially beneficial for self-employed taxpayers.

 

There are also tax credits that you can take even if you choose a standard deduction. Unlike deductions, which remove a percentage of the specific tax owed, tax credits offer dollar-for-dollar reductions.

 

To find overlooked itemized or above-the line deductions or tax credits within changing tax laws, it may best serve the average taxpayer to target seven broad areas where such evolving tax law changes and deductions might commonly occur:

 

 1   Overlooked Medical Deductions

 

These may include:

 

• nursing home expenses
• childbirth preparation classes
• the cost of drugs requiring a prescription (except insulin)
• medical fees from doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, Christian Science practitioners, and acupuncturists
• alcoholism or drug abuse treatment expenses
• equipment for disabled people
• prescription eyeglasses and contacts
• medical transportation

 

 2   Overlooked Family Deductions

 

These may include:

 

• long-term care insurance premiums
• child care expenses up to a limit of qualifying expenses
• foster child care expenses
• legal fees for alimony collection or obtaining alimony
• required alimony payments to a former spouse
• certain fertility enhancement procedures, such as in vitro fertilization
• surgeries involving tubal ligations or vasectomies

 

 3   Overlooked Homeowner Deductions

 

These may include:

 

• lead paint removal
• theft, fire, storm, and other casualty losses (if they are more than a certain percentage of your gross adjusted income)
• energy efficiency tax credits, including insulation and energy-efficient roofs, doors, heating, and cooling (Note that, since these are fairly recent tax innovations, energy laws must be continually tracked for changes.)
• interest paid on a home equity line of credit, even if the line of credit is used to pay personal debt (with some limitations)
• mortgage pre-payment penalties
• closing costs on a property bought or sold

 

 4   Overlooked Job-related Deductions

 

These may include:

 

• education expenses to improve job skills
• employee job relocation expenses (Note that moving expenses may have travel mileage limitations.)
• labor union dues
• protective clothing needed for a job
• subscriptions to trade-related magazines and journals
• business travel expenses

 

 5   Overlooked Home Business Deductions

 

These may include Schedule C deductions, many of which are geared specifically to small business owners:

 

• half of your self-employment tax deductions, including Social Security and Medicare
• contributions to self-employed retirement plans such as SEP or SIMPLE IRAs
• health insurance premiums for the self-employed
• business liability insurance
• contributions to employee retirement plans
• home office expenses
• depreciation for computers and other types of office machines

 

 6   Overlooked Tax-related Deductions

 

These may include:

 

• foreign taxes paid
• accounting fees for tax preparation or IRS audits
• Energy-efficient tax credits for individuals who buy or lease qualified hybrid-gasoline cars or trucks. Other tax credits aimed at taxpayer energy-efficiency expenses include the purchase of energy-efficient household appliances as well as other energy-efficient home improvements
• state and local income taxes, including personal property taxes

 

 7   Overlooked Education Deductions

 

These may include:

 

• Student loan interest up to a certain amount. An odd loophole: student loan interest paid by a taxpayer's parents may be deductible by the taxpayer and treated as a gift even if he or she is no longer claimed as a dependent on the parents' taxes.
• education tuition and fees up to a certain amount for qualified institutions
• the cost of correspondence courses
• research expenses as part of an educational program

 

Additional Resources:

 

• Tax deduction tips from H&R Block: http://www.hrblock.com/taxes/tax_tips/deductions_credits/overlooked_deductions.html

 

• Tax credit tips from the Department of Energy:

             http://www.doe.gov/taxbreaks.htm

 

• Itemized tax deductions FAQ from the IRS:

      http://www.irs.gov/faqs/faq3.html

 

• Medical deductions information from the IRS:

      http://www.irs.gov/taxtopics/tc502.html

 

Information about SEP IRAs from Fidelity: http://personal.fidelity.com/products/retirement/getstart/newacc/sepira.shtml.cvsr?imm_pid=1&immid=00202&imm_eid=e15338&buf=999999