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I know that tax deductions are subtracted from the gross income.

After you exceed the standard deduction. Read the directions for schedule A and some publications about deductions and you'll have a better idea of what goes into that than we can give you, but others have mentioned the most likely cases (mortgage interest, state & local taxes, property tax.)

Is there any way to get a better tax liability amount to donation amount ratio?

Clumping your deductions. This year you make no additional donation to charity and take the standard deduction. Next year you make several year's worth of donations and exceed the standard deduction.

401k contributions lower your taxable gross income. So you should see that result in a lower tax bill.

and calculate that I owe another $1.6k
Are you concerned about penalties, or is the withholding in 2005 greater than your total tax bill for 2004?

- Megan
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