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Originally published January 19, 2010 at 11:40 AM | Page modified January 19, 2010 at 12:57 PM

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Many tax credits, deductions overlooked

If you thought you had the tax laws figured out, guess again.

Associated Press Writer

WASHINGTON —

If you thought you had the tax laws figured out, guess again.

Every year, Congress makes changes - some big, some little - making it just a little more difficult to complete your tax return.

"People need to seek out some assistance in doing their taxes. You can't sit down blind and do them," said Gregory Rosica, a tax partner at Ernst & Young and contributing author to "Ernst & Young Tax Guide 2010."

That assistance can range from asking a professional to prepare your taxes, to using a software program or reading a guide, to consulting the Internal Revenue Service Web site.

"I think this is an important year to make sure you're getting every dollar owed to you," said Amy McAnarney, executive director of the Tax Institute at H&R Block.

That means making sure you are claiming all the deductions and credits to which you are entitled, especially those from the economic stimulus bill that Congress passed in February 2009.

"This could mean extra money in your pocket as the American Recovery and Reinvestment Act created a number of new credits and expanded some existing ones," IRS Commissioner Douglas H. Shulman said in a statement included in the instructions for filling out the 1040 tax forms.

An IRS public service announcement tells taxpayers there are more credits and deductions than usual this year.

"I feel like a kid in a candy store," a man says after hearing about tax credits for going to college, buying a home or making your house more energy efficient.

A tax credit directly reduces the taxes you owe. A deduction reduces the income on which your tax liability is based. In some cases, credits are refundable. That means you'll get the money back even if the amount exceeds what you owe in taxes.

Be prepared to spend some time reviewing credits and deductions. If you use form 1040, the IRS estimates that it will take 21.4 hours to complete and file your taxes.

Jeff Schnepper, MSN Money tax expert and author of "How to Pay Zero Taxes," puts it this way:

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"We spend 7.6 billion hours each year just to figure out what we owe. That's more hours than used to build every vehicle, airplane manufactured in America."

Many credits and deductions, like the new American opportunity credit for college or the sales tax deduction for new car purchases, are reduced or eliminated entirely at higher incomes. Some, like the earned income credit, are based on the number of children in your family. And if you're going to claim the homebuyer credit, the amount depends on whether you are a first-time homebuyer or owned a home before and used it as a principal residence.

Tax experts advise people to be sure they claim the proper number of personal exemptions and to carefully weigh whether they're better off using the standard deduction or itemizing. Remember that this year you can add to the standard deduction the cost of sales and excise taxes on new vehicles and state or local real estate taxes. However, the car tax provisions begin phasing out for individuals with modified adjusted gross incomes of $125,000 or more and joint filers with incomes of $250,000.

If you take deductions for charitable donations, stricter recordkeeping rules remain in effect. For monetary contributions, you need a canceled check or, if you gave cash, a detailed receipt.

In its tax guide, Ernst & Young lists 50 of what it says are the most overlooked deductions. They include: accounting fees for tax preparation or IRS audits, casualty or theft losses, employee moving expenses, dues to labor unions, long-term care premiums and the cost of doing charitable work, including driving there.

There also are deductions for removing lead paint, health insurance premiums if self-employed, and alcohol or drug abuse treatment.

Because of the statute of limitations, tax experts advise you to keep records for any income you report, or credit or deduction you claim, for at least three years, longer in many cases, especially if you own securities, a home or other property.

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