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If you keep good records, deductions can be a great way to reduce your taxable income. Increasing your allowable deductions means the less tax you owe and the more money you get to keep.

To maximize your deductions, it's a good idea to familiarize yourself with tax rules -- there are likely many deductions that you're missing out on. To get you started, here's a list of eight commonly overlooked tax deductions:

  1. Out-of-pocket costs for charity. There's a perception that charitable donations only include cash or goods. This is because the value of your time spent volunteering for charitable organizations is never deductible. However, out-of- pocket expenses relating to volunteering for charitable organizations are deductible. Costs would include the cost of transportation, such as driving (the standard mileage rate for 2009 is 14 cents a mile for charitable purposes), parking fees and tolls. You can also claim travel expenses while you're away from home performing services for a charitable organization, assuming the expenses are related to the services and not for personal use (such as a vacation). Travel expenses would include air, rail, and bus transportation (as well as expenses for your car); taxi fares or other costs of transportation between the airport or station and your hotel; the cost of lodging; and the cost of meals.
  2. Transportation for medical visits. Sure, you've dutifully tucked away your receipts for co-pays to the doctor, but what about the costs of getting there? The cost of getting to and from medical appointments is deductible. If you drive, you can claim your actual expenses associated with the drive or claim the standard medical mileage rate: For 2009, it's 24 cents per mile. Bus fare, train fare, or cab fares are also deductible, as is the cost of tolls and parking.
  3. Job hunting expenses. While you can't deduct the cost of looking for your first job (sorry, new grad!), you can deduct out-of-pocket expenses related to your job hunt if you've been laid off or are simply moving on. This includes paper, printing, and stamps for your resume; online expenses to post your resume (on Craigslist, for example); fees paid to employment agencies; travel to and from interviews; long distance calls to prospective employers; and the costs of getting a portfolio or other work samples together. You must be looking for a job in the same profession -- you cannot deduct the cost of looking for a job in a new profession. You also can't deduct job expenses if there has been a "substantial break" between leaving your last job and starting to look for new job. You don't have to have success within a reasonable amount of time, but you do need to be looking.
  4. Student loan interest paid by parents. Generally, you can only deduct items on your tax return that you actually pay. But the IRS gives students a break: If you are legally obligated to make interest payments, and your parents make a payment on your behalf, the IRS allows you to take the deduction. This is a great way for parents to help out by making the payments and allowing the child to claim up to $2,500 of student loan interest. Even better? Student loan interest is an above-the-line deduction, which means you can claim it even if you don't itemize.
  5. Property tax. For 2008 and 2009, homeowners who don't itemize can increase their standard deduction amount by a portion of property taxes they paid. The increase is capped at $500 for taxpayers who file as single or $1,000 for those who file married filing jointly. To claim the extra deduction, you'll need to complete a Schedule L with your tax return.
  6. Gambling losses. You may know that you have to report your gambling winnings as income on your tax return -- even if you won them illegally. But did you know you can deduct your losses as well? You can only deduct gambling losses if you itemize deductions on your tax return, and the amount of losses cannot be more than the amount of gambling income you reported on your return. To prove this, it's important to keep accurate records of your gambling winnings and losses. Depending on where you're getting your winnings (or losses), many casinos will put this information in writing for you.
  7. Tax preparation fees. You can claim a deduction for out-of-pocket expenses paid for tax preparation software, tax publications and the costs associated with electronic filing. Those expenses, together with fees paid to a tax preparer in the year of the return (for example, fees paid in 2009 would be reported on your 2009 return) will be reported on Schedule A of your federal form 1040 as an itemized miscellaneous deduction.
  8. Home improvements. Most homeowners are aware they can deduct the cost of a mortgage associated with the purchase of a new home. You can also deduct the interest paid on a loan used for the construction of a major improvement to your home. For tax purposes, there is a difference between home improvements and home repairs -- an improvement will add to the value of your home, whereas a repair merely returns it to its previous state. Keep good records to substantiate your claims.
Don't miss out on tax breaks you might be entitled to. With a bit of research (or the help of a paid preparer or software package), you can maximize your deductions and keep more of your money from Uncle Sam.

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