Tax deductions are a way to minimize your annual tax liability and ultimately reduce your tax payment. There are many common deductions that each taxpayer might be able to take advantage of regardless of whether they take the standard deduction or itemize their deductions. Additionally, if you decide to itemize your deductions, the list grows even larger.

Common Deductions

The standard deductionyou may use the standard deduction unless: (1) you choose to itemize your deductions, (2) Your spouse files separately and itemizes deductions, (3) you are filing a partial year return because of a change in accounting periods, or (4) you are a nonresident or dual status alien.

Itemized deductionsif you itemize your deductions, you must be aware that the amount of the deduction may be reduced if your adjusted gross income exceeds a threshold amount that is adjusted each year for inflation. For instance, for 2006 the amount is $150,500.00 (or $75,250.00 if you are married and filing separately). Deductions impacted by the income threshold include taxes paid and interest deductions (other than investment interest expense), charitable contributions, job expenses, health related expenses, and other miscellaneous deductions.

Whether or not you itemize or use the standard deduction, the following deductions can apply:

Contributions to Retirement Accountsif you contributed to an individual retirement account (IRA) or other tax-advantage account during the tax year, you may be able to deduct this expense from your gross income. If you did not make a contribution during the tax year, you have up until the April 15th deadline to make that contribution. Adjustments to gross income do apply.

Student Loan Interestyou may be able to deduct up to $2,500.00 per year of student loan interest for qualified loans. You cannot take the deduction if any of the following apply: (1) another taxpayer claims you as a dependent, (2) your filing status is married filing separately, (3) you are not legally obligated to make payments on the loan, (4) your modified adjusted gross income (AGI) is $65,000.00 ($135,000.00 if married filing jointly).
Capital LossesIf you realized a loss from the sale and exchange of stock or other capital assets these losses can be used to offset unlimited capital gains or up to $3,000.00 of other income. You must first use your loss to offset your capital gains. If your losses exceed your gains, you may deduct the rest from income, up to

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