Entire books are written about tax deductions every year - for people in the upper tax brackets who itemize their deductions, identifying, tracking and tallying tax deductions can almost become a bad habit. We'll assume you are a not a tax maven for this article, but give you enough information to make use of great tax deduction tips when you come across them.



Tax deductions only matter to people who itemize their deductions, so if you just take the standard deduction on your annual tax form, there's no need to get really into tax deduction tips. But if you do itemize your deductions (small business owners and people in higher tax brackets usually do), there are some important things to know.

You can not deduct more than 50% of your adjusted gross income for the year. In other words, (and for example only), say you actually make $65,000, but per the tax tables and other conditions specific to you, your official adjusted gross income is $50,000. That means you can not deduct more than $25,000 a year. But if you are in a situation where you actually have more than 50% deductions, you take the max amount in the year you are filing for, then carry over the remainder up to 5 years later. To go back to our earlier example, if you happened to have $35,000 in deductions for one year, but were allowed only $25,000 (half of your $50,000 adjusted gross income), you could carry the extra $10,000 over into the following five years, though you'd probably only need it for the next year, unless you nearly max out your deductions every year.

Deductions to charities have to meet several different criteria. First, the charity has to be qualified, which usually means it is 501(c)(3) classified, or a "religious organization". Donations to "lodge organizations", fraternities, chambers of commerce, and labor unions are not tax deductable. You can check with the IRS if your donation to a specific charity is legitimate by calling 877-829-5500, or you can check IRS Publication 78, Cumulative List of Organizations.

The second major requirement is to have proof of the donation. Bank accounts and credit card receipts will do, but if your donation is more than $75, try to get a statement from the charity about the value of any side benefit you receive (for example, if you donate $100 and get a free calendar). If you donate more than $250, you'll have to get written acknowledgement from the charity. Most charities will automatically send you this information, but if they don't you'll have to request it yourself.

The timing of your donation matters, to, but its pretty easy to meet the requirements. You have to make the donation in the same year you are deducting it, but if you send your check or pay by credit card on December 31st, you're still good for that year, even if you do not actually pay the credit card bill until February, or have the check clear until January 15th (for example).