Deductions – they are the godsend for those wanting to reduce their tax liability. They are the reason businessmen insist on getting receipts for those "power lunches" and a less than altruistic reason for donating money to charities. While all American taxpayers receive a standard deduction on their federal taxes, each year millions scratch their heads itemizing additional deductions in an attempt to take full advantage of tax laws.

In general, in addition to donations to charitable organizations, tax deductions include losses due to theft or natural disaster, interest paid on a home equity loan, and medical or dental expenses. These are not the only deductions, however, and many people overlook the less obvious, such as job hunting expenses or gambling losses.

Commonly Overlooked Deductions

One of the most commonly overlooked deductions is interest paid on home equity loans. By contract, interest paid on such debts as credit cards, referred to as "personal interest," is not deductible. This can be rectified by using a home equity loan or a home equity line of credit to pay off the credit cards, which makes the interest deductible. A taxpayer can deduct up to $100,000 of interest on home equity debt. Also, debt incurred to buy a home is deductible. Interest rates on home equity loans also usually have much lower interest rates.

There are numerous expenses incurred over the course of daily life that can be deducted. These include money spent looking for a job (such as having resumes printed, long-distance phone calls, and mileage driven to job interviews), expenses related to investments (such as calls to stockbrokers and subscriptions to investment newsletters), and business expenses (such as pens, paper, and internet access for computer professionals).

Bunching Deductions

Some deductions, such as medical or miscellaneous expenses, require a minimum, or "floor," before they can be used. For medical expenses, a taxpayer must spend at least 7.5 percent of their gross adjusted income and at least 2 percent for other miscellaneous expenses. As such, tax advisors urge that you bunch these expenses, not space them out over more than one year. For example, if both children need braces, it would be better to have them both done in the same year, rather than waiting and risk not meeting the deduction threshold.

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