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Paying for tax preparation services is especially valuable to people who itemize deductions. Itemizing normally requires the tax deductions that accompany home ownership. The itemized deductions for home mortgage interest and real estate taxes are normally the largest categories.
However, once someone has enough deductions to itemize, every addition provides extra money in the taxpayer's pocket. Consequently, a significant contribution of professionals with registered tax return preparer training is digging for types of deductible items that individuals often overlook.
Certain categories of itemized deductions are not allowed until they exceed a specified amount. For example, the only deductible medical expenses are those that exceed 7.5 percent of the taxpayer's adjusted gross income. This means that someone with $100,000 of adjusted gross income cannot deduct the first $7,500 of medical expenses.
A little planning by someone with tax preparation education can frequently get a taxpayer past the 7.5 percent threshold for medical expenses. Many illnesses and healthcare treatments result in several thousand dollars of out-of-pocket costs. Higher insurance deductibles and rising co-insurance percentages are causing patients to bear a greater share of healthcare expenditures.
When an event causes extraordinarily high medical costs in one year, registered tax return preparer work is initiated to add routine small medical expenses in deriving a total. A sound technique is accelerating the types of medical payments that are often deferred. For example, early payment of orthodontia costs permits deduction in the year they are paid instead of the future year of services rendered. Payment by credit card counts as a tax deduction the same as cash outlays.
Whenever a taxpayer has sufficient or nearly sufficient medical costs to meet the 7.5 percent hurdle, benefits arise from hiring a tax professional. RTRP exam preparation covers every type of deductible medical expense, such as dental and optometric costs.
Although the 7.5 percent medical expense barrier is usually difficult to surpass, the limitation on miscellaneous itemized deductions is a little easier. Taxpayers can deduct miscellaneous itemized expenses that exceed 2 percent of adjusted gross income.
Most miscellaneous deductions are related to investments and taxes. Some examples are investment advisory fees and tax preparer fees. Again, flexibility about when payments are made can provide enough miscellaneous expenditures to itemize. Pre-paid fees are tax deductions despite receiving the services later. Therefore, taxpayers can bunch payments for miscellaneous itemized deductions into a single year. For instance, in the year where extra costs are incurred for estate tax planning or legal costs to collect a debt, a taxpayer should pre-pay the investment adviser and tax return preparer.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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