10 big deductions too many people miss

Investment and tax expenses

Many of us forget tax planning and investment expenses because they are part of miscellaneous itemized expenses. Their total must exceed 2% of your adjusted gross income before you get any tax benefit.

Expenses to track include your employee business expenses, tax preparation fees and even the portion of your legal or accounting fees relating to tax planning. For example, in a divorce, the legal time spent relating to the tax aspects of alimony and child support would qualify. So too would the tax aspects of estate planning.

Many people shortchange themselves on the deduction of investment expenses. They remember the safety deposit box fees. But how about the annual fee paid your broker and any IRA fees you pay directly? You may remember the cost of your investment publications on subscriptions -- such as Forbes, Fortune, BusinessWeek, Worth and Barron's. But how about the investment newspapers you buy off the newsstands? You keep track of your long-distance phone calls to your broker and investment adviser, but how about the mileage to go see them?

Casualty deductions

Last year brought forest and range fires aplenty, as well as floods and huge snowstorns.

If the president declared your area a disaster area, you could have claimed your loss on either your 2009 or your 2008 return. When new disasters occur, they may also provide tax relief should you sustain any losses.

Retirement tax credit

This one also can come with a deduction.

This credit is designed to give moderate- and low-income taxpayers an incentive to save for retirement.

Make a contribution into your retirement account. That money isn't taxed currently. So, it's like you got a deduction off your income. In addition, you get a credit of as much as 50% of the first $2,000 invested. That's as much as a $1,000 reduction in your tax.

You get the $1,000 tax reduction as well as the $2,000 reduction in your income. That's a nice rate of return on a $2,000 investment. Moreover, if you qualify, you can deduct as much as $5,000 ($6,000 if you're 50 or older) in contributions to an IRA.

The tax credit disappears as your adjusted gross income increases. But singles with adjusted gross incomes up to $27,750 and joint filers with AGIs up to $55,500 qualify. The limit is $41,625 for heads of households.

Contributions to 401k's, 403b's, Simplified Employee Pension plans, traditional and even Roth IRAs qualify as well.

Want to push the envelope? Make a $4,000 contribution into a Roth IRA for 2009 on Dec. 31, then take a distribution on April 16, 2010. Only the income earned during that period will be taxed, and you can get a credit of as much as $2,000. But you can do this only once.

• For more, see Publication 17, page 255 (.pdf file).

Updated Dec. 14, 2009

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