5 Smart Ways to Reduce Your Taxes

People often miss deductions for medical expenses or traveling for a job interview.

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Putting off your 2007 tax return until closer to the deadline isn't being idle. It's still possible to scout for tax breaks for 2007 or even reconsider what you did for 2006.

Squirrel away, save tax. Taxpayers with job income have until this April 15 to contribute to a tax-deductible individual retirement account and treat the payment as a 2007 deposit—reducing last year's taxable income by that amount. The maximum pay-in may be as much as $5,000 per person, or $10,000 for a couple even if only one spouse works. Pension coverage at work, though, may limit eligibility. Self-employed people may have until their filing deadline or later to make hefty 2007 deposits to specialized arrangements such as a SEP or Keogh.

Comb through spending. Tax-deductible expenses that reduce your taxable income may be waiting in your checkbook or credit card statements. Use your time to pull them out. IRS booklets and forms, tax software, and publications such as the J. K. Lasser tax guide can stimulate thinking.

A challenge to deducting medical bills, for example, is that only the uninsured amount in excess of 7.5 percent of adjusted gross income is typically deductible. It may be possible to jump the hurdle by combining everyday items with a few big ticket ones.

Among outlays that can bolster a medical deduction are travel to get surgery or other treatment, dental work, a weight loss program for doctor-diagnosed obesity, a nurse's wages, medically mandated cosmetic surgery, laser eye correction, health insurance premiums, and home improvements or equipment necessitated by a medical condition. New: The IRS now makes clear that physical checkups, pregnancy tests, and full-body scans are deductible even with no immediate medical need.

Odds and ends. The last section on the 1040's Schedule A for itemizing deductions is for "miscellaneous" items, but that doesn't mean it's penny ante. Included, for example, might be an out-of-town trip to a job interview—regardless of whether it worked out; payments for investment or tax advice, the cost of travel or a computer to manage financial assets, and possibly employee expenses for a home office, extra schooling, or trips for your employer.

Not so hot: Only the portion of total miscellaneous expenses that exceeds 2 percent of your adjusted gross income is generally deductible. One exception: Gambling losses are fully deductible, up to the amount of your reported winnings.

Credits. Whether you itemize or take the standard deduction, tax credits can be claimed in addition to those amounts, with each $1 of credit offsetting $1 of tax. Working parents, for example, might be able to claim one for child care—even day camp during the summer. Drivers who bought a hybrid car last year and people who paid college tuition are among others for whom a credit hunt can pay off.

Looking back. Missed something good in the past? You generally have three years in which to amend a previously filed return, using form 1040X. Whether it's worthwhile depends on the amount involved and if you will have to pay a preparer.

A possible fix for many is to claim the rebate of telephone excise tax that was allowed on the 2006 return filed last year but the IRS says was often missed. An easy-to-claim option for a fixed rebate of $30 to $60 requires no old phone bills or other rigmarole.