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The Fine Art of Tax Deductions

» Introduction
Knowing the IRSís standard deductions and how to itemize deductions is a key to getting the most from a tax planning strategy. Thatís why you want to cover deductions like a blanket, so youíll never again wonder if youíve missed a deduction you could have taken.
» Step 1
Alimony Payments & Income -- The way the IRS treats various parts of the financial arrangements that accompany a divorce can play a major role in the structure of those arrangements. Payments that qualify as alimony are deductible by the ex-spouse who pays them and taxed as income to the one who receives the money. Child support, on the other hand, is neither deductible nor taxed.
» Step 2
Charitable Contributions Ė Contributing to charity enables you to do good by doing well Ė for your favorite cause and for yourself. Like most other financial moves, timing is every thing. For example, if you're thinking of making a substantial gift to your alma mater, doing so before the end of the year locks in the deduction for the current year. If you normally give $100 a month to your church, making the January contribution by December 31 boosts your write-off by that amount. If you make a pledge to make future contributions, however, you don't get the deduction until you actually make the gifts.
» Step 3
Medical Expenses Ė Ouch, that aching back! You can alleviate some of the pain by deducting your doctor bills. Remember this when you do so: because medical bills are deductible only to the extent that they total more than 7.5% of your adjusted gross income, timing your payments may be the only way to garner a tax benefit from these costs. By early December, you should have a good idea whether you'll pass the 7.5% test.

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