Taxpayers know that there are tax deductions out there to be utilized to reduce the taxes paid on your income. Most are aware of the common deductions, but there are many deductions that simply get overlooked by most taxpayers.
Gifts to charity are a good place to start. Most taxpayers know that when you give a gift of money or items to a qualified charity, you can deduct the value of this gift, with proper documentation. One common item that gets missed is the miles that you drove or out-of-pocket expenses you paid for the charities benefit.
Most taxpayers also consider mortgage interest. Though fewer taxpayers are claiming the interest on their mortgage (due to no longer taking itemized deductions with the increase in the standard deduction), mortgage interest still remains a large deduction. An additional deduction that is sometimes missed is the points associated with refinancing your mortgage. Additionally, when you pay-off or refinance a mortgage that has points still remaining, you can deduct those points in full. Be aware that using the same lender for another mortgage often means that the remaining points simply get rolled into the new mortgage and are therefore not deductible.
State and local taxes, along with real estate or property taxes are a deduction most people are aware of. Sometimes, smaller taxes paid for your car or other vehicle fees or licensing costs are deductible in some states.
EITC, or Earned Income Tax Credit, is taken by many taxpayers each year. It is a refundable credit and not a deduction. Many taxpayers think that it applies only to low-income payers, when in fact it covers many circumstances that get overlooked. These can include the loss of a job, a pay cut, or working fewer hours.
Most taxpayers have heard of education credits. These credits consist of the American Opportunity Credit and the Lifetime Learning Credit. The American Opportunity credit applies to undergraduate studies and covers up to $2,500 in qualified spending on college expenses. The Lifetime Learning credit is for continuing education and covers up 20% of qualified expenses up to $10,000. In other words, a tax credit of $2,000 on eligible expenses. The qualified expense can include tuition, fees, room and board, books, supplies, lab fees, tutors, transportation, and more. If you are a teacher, you may be eligible for a deduction of up to $250 for out-of-pocket expenses paid for school supplies, books, computers, etc. Anything over and above the $250 deduction can be taken in your itemized deductions but is limited to 2% of your adjusted gross income. This deduction is limited to K-12 teachers, counselors, principals, and aides. To qualify for this deduction, you must work at least 900 hours in a school year. Student loan interest of up to $2,500 can also be deducted.
Now let’s focus on the lesser-known credits. A savvy taxpayer will review these credits with their tax preparer to see if they qualify.
Military reservists who travel more than one hundred miles and stay overnight for meetings or drills qualify to deduct lodging, mileage and 50% of meals.
If you have moved more than 50 miles away from your previous residence to take a job, your moving expenses may be deductible. This can include movers, truck rental, and mileage. Additionally, some states offer a deduction for the rent you pay for your primary residence. If you sold your home but made improvements to it while you owned it, these improvements may increase the value of the home and reduce the taxable gain on the sale.
If you pay for childcare so that you can work, a portion of your total child care costs can be deducted. This includes qualified camps and other programs. It is important to note that if your employer offers reimbursements with pre-tax dollars, this may be a greater tax advantage than taking the deduction.
Out of pocket medical expenses also qualify, provided they are over the 7.5% floor. There is a list of qualified medical expenses produced by the IRS if you are unsure about deducting nontraditional medical expenses. If you have dependent children and parents that qualify, it is important to remember to add their medical costs as well.
There are many business-related deductions for taxpayers as well. If you work from home and are self-employed or are not reimbursed by an employer, you may deduct a portion of your home that is designated and solely used for a home office. Home office expenses can include a portion of depreciation, utilities, taxes, interest, insurance, etc. You may also deduct 50% of your self-employment taxes, Social Security and Medicare if you are self-employed. If you belong to a union, union dues are deductible, as are fees associated with licensing and certifications. If your job requires you to purchase certain items like protective gear, you may be able to deduct these as well. Travel for business can potentially be deductible, but be careful to only expense the travel used solely for business.
If you were on jury duty and got paid for it, but your employer also paid you for jury duty, you must turn your jury duty check over to your employer. However, you do get to deduct the amount of the jury duty pay given to you by the government. If you spent money on a job search, that is also deductible, although this does not apply if it is your first job or if you are switching careers. These costs can include transportation, recruiter fees, some food and lodging, printing costs, and more.
Theft or casualty losses are also deductible. Things that qualify for this are theft, vandalism, fires, storms and car accidents. You must subtract any funds received from the insurance company against the amount being claimed. There can be deductions for fees paid to your investment broker, tax preparation fees, gambling losses up to the number of winnings, and many other credits.
Seeking the advice of a tax professional to see which ones you may qualify for is vital in not missing a possible deduction or credit.