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are several deductions that American taxpayers frequently miss when preparing
their returns. Twelve of the most commonly overlooked deductions are: 1.
Health insurance premiums for self-employed. Self-employed individuals (including
those filing Schedule C) may deduct the amount paid for health insurance premiums
on behalf of themselves, spouses, and dependents. 2.
Investment advisory fees. You can deduct investment fees, custodial fees, trust
administration fees, and other expenses you paid for managing your investments
that produce taxable income. 3.
Contact lenses, eyeglasses, and hearing aids. The cost of items like contact lenses,
eyeglasses, and hearing aids qualify as deductible medical expenses. However,
you will only receive a tax benefit if your medical expenses total more than 7.5
percent of your adjusted gross income. 4.
Casualty or theft losses. Casualty losses can result from a number of different
causes including car accidents, earthquakes, fires, floods, vandalism, and storms
(including hurricanes and tornadoes). Theft losses can includes blackmail, burglary,
embezzlement, extortion, larceny, and robbery. Victims of Hurricanes Katrina,
Wilma and Rita can get an even greater benefit from this deduction because of
recent tax law changes. 5.
Depreciation of home computers. You can deduct depreciation on your home computer
if you use it to produce income (for example, to manage your investments that
produce taxable income). 6.
Mortgage prepayment penalties and late fees. If you pay off your home mortgage
early, you may have to pay a penalty. You can deduct that penalty as home mortgage
interest provided the penalty is not for a specific service performed or cost
incurred in connection with your mortgage loan. 7.
Improvements to your home. You need to know your basis in your home (the cost
when you bought or built it) to determine any gain or loss when you sell it. Any
improvements which add to the value of the house, prolong the useful life, or
adapt it to new uses affect your basis. You add the cost of additions and other
improvements to the basis of your property. 8.
Protective clothing required at work. You can deduct the cost and upkeep of work
clothes if you must wear them as a condition of your employment and they are not
suitable for everyday wear. 9.
Long-term care insurance premiums. Medical expenses that are deductible include
medical insurance premiums for policies that cover medical care. This includes
premiums on qualified long-term care insurance contracts up to a specific amount
based on your age. 10.
Worthless stock or securities. Stocks, stock rights, and bonds (other than those
held for sale by a securities dealer) that became worthless during the tax year
are treated as though they were sold on the last day of the tax year. This affects
whether your capital loss is long-term or short-term. 11.
Fees for safe-deposit box to hold investments (e.g. stock certificates). You can
deduct safe deposit box rent if you use the box to store taxable income-producing
stocks, bonds or investment related papers and documents. You cannot deduct the
rent if you use the box only for jewelry, or other personal items. 12.
Penalty on early withdrawal of savings. If you withdraw funds from a deferred
interest account, such as a certificate of deposit, before maturity, you may have
to pay a penalty. You must report the total amount of interest paid or credited
to your account during the year and subtract the penalty separately on Line 30
of Form 1040. (Source:
Ernst & Young LLP Tax Guide 2006) 
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