March 10, 2004 Transcript
David gave advice on how to find tax deductions that can save you money on your return!
SOLEDAD: With the mother of all deadlines, April 15th a little more than a month away, many taxpayers are feeling tense. We are going to try to relieve that tension and ease your tax burden at the same time. David Bach is our personal finance contributor, and also our tax expert. We are going to talk about deductions that are often overlooked. The general accounting office says approximately $950 million is overpaid by taxpayers a year.
DAVID: Incredible. The government is telling Americans they should be itemizing. Many don't itemize. That means you are losing out on free money. An example would be this. If you earned $50,000 a year, and you had $10,000 in itemized deductions, that could put potentially $3,000 or $4,000 back in your pocket, more money thank most Americans save. So these are critical.
SOLEDAD: Let's talk about what a deduction is. What sorts of things are deductible and what are not, speaking generally.
DAVID: It is unbelievable how much is deductible. We will show this book in a second. I don't want to say everything is deductible but a lot is. We are going beyond giving money to charity. We have five simple things that most would never think about that are itemized deductions that can put thousands back in your pocket right now.
SOLEDAD: The first thing you say is the points you pay to refinance your home.
DAVID: This is something that people don't realize. When you buy a home, you pay a point. A $300,000 home you pay one point for that loan, that's $300,000. You are going to have to take that deduction over the life of the mortgage, but when you refinance, you are able to take all that deduction you haven't used and take it that year, so if you refinance this year, you may be able to go back and get the full credit for that one point which could be thousands back in your pocket.
SOLEDAD: I was surprised to read moving expenses. Any limitations?
DAVID: There is, if you move over 50 miles for a job, you can write that off. Guess what, one in five Americans move every year, so a lot of people who move for a job can write that off.
SOLEDAD: What qualifies as the moving expense.
DAVID: That would be the people who show up with the truck and put your stuff in a struck and that could be over $1,000.
SOLEDAD: I paid more than that when I moved from California out to New York. Penalty fees on investments, what are you talking about?
DAVID: I like this one. Let's say you buy a CD in a bank. If you buy a five-year CD and sell that early, there's a penalty fee. That penalty fee is actually an itemized deduction provided you take it. If you buy an investment and there's a cost to sell that investment, you can actually take that as an itemized deduction against your taxes, putting at least hundreds of dollars back but maybe thousands.
SOLEDAD: Weight loss programs are deductible. Atkins, Jenny Craig, all those?
DAVID: It he depends. If a doctor says you need to lose weight, puts that in writing, and recommends you go on an Atkins or Weight Watcher's program, that's a deduction.
SOLEDAD: So everything you spend on that program?
DAVID: Yes. That's what surprised me, the foods, all the shakes that people are running around making and the vitamins, provided the doctor recommended lose weight for health reason the governments says yes that is a deduction.
SOLEDAD: Deductions for having a baby, what does that cover? It looks like if you are taking birth and child prepare courses, which I am not going to do.
DAVID: I just took this class, we have a 6-month-old, so I had to learn how to diaper a doll. That class cost $700.
SOLEDAD: You were ripped off. I would have taught you that for, like, 20 bucks.
DAVID: But they teach you a lot and it's mostly for the fathers, quite frankly. But that is an itemized deduction.
SOLEDAD: Anything else when you have a child outside of the classes? Not that I'm asking all about me but.
DAVID: Well, if the doctor tells you that you need certain things because, for instance, I know you are having twins, maybe you need certain things because of those medical issues - that condition qualifies as an itemized deduction.
SOLEDAD: You brought this book here.
DAVID: People say "Where do I learn these things? "
SOLEDAD: Let me hold it up.
DAVID: Most people would look at a guide, this is the Ernst & Young Tax Guide for 2004, I think this is fantastic guide. There's 50 of the most commonly missed deductions. Just that alone is the worth the price of admission on this book, as even if you hire a consultant, you have to know the questions to ask. A lot of accountants won't say "Did you have a baby this year, did you take a
SOLEDAD: Do you think people should hire an accountant or buy a book and file through it themselves?
DAVID: Honestly I think most should hire an accountant, a CPA, H&R Block. If you spend $500, you would save that much in itemized deductions. But there are great programs out there, or buy a book like this. It can help you.