Welfare and Other Public Assistance Benefits

If you are the recipient of benefit payments from a public welfare fund, you do not have to include them in your income. In addition, any payments from a state fund that you received as a victim of a crime should not be included in income. However, if you paid medical expenses that were reimbursed by a victim's fund, you are not entitled to a deduction for those expenses.

Mortgage Interest Credit

Low-income taxpayers who purchase a residence may be entitled to a federal income tax credit for part of their home mortgage interest paid each year. The credit is a direct dollar for dollar reduction of taxes owed. Generally, a qualifying principal residence may not cost more than 90 percent of the average area purchase price, but it can go as high as 110 percent in some targeted areas.

Expenses of Producing Income

If you hold property for the production of income, you know that these investments generate not only income but also expenses. Fortunately, the Internal Revenue Code permits you to deduct those expenses (with certain limitations) if they are ordinary and necessary for the production or collection of income or for the management of property held for the purpose of producing income. In order to be deductible, the expenses must be directly related to the income or income-producing property, and the income must be taxable to you. In addition, you must itemize deductions on your tax return. In general, these deductible expenses of producing income will be subject to the 2 percent limit applicable to all miscellaneous deductions. In other words, you will be able to deduct only those investment expenses (other than interest, which is handled separately) that exceed 2 percent of your adjusted gross income.

Due Process in IRS Collection Actions

The Internal Revenue Service is now required to give taxpayers whose property might be levied upon pre-notification of the levy and an opportunity for a formal hearing and judicial review.

Lottery and Gambling

All winnings, including cash and the fair market value of noncash prizes such as cars, houses, and vacations, must be included in a taxpayer's income. Gambling winnings are fully taxable. The taxpayer is permitted to deduct gambling losses for the year only if he choses to itemize deductions, and then only to the extent of winnings.