No one is a big fan of tax time. It’s the time of year when nerves over what you might owe and having to get everything together conspire to make things decidedly unpleasant all around. There’s one silver lining: Deductions. You should take every deduction you are legally entitled to take. Here are some that many people overlook in their haste to get tax season squarely in the past.
Travel
No, you can’t deduct the family vacation. You, can, however, deduct a number of other travel expenses. You aren’t allowed to deduct pro bono work done for charity, but you are allowed to deduct all expenses related to volunteering your time. Further, you can deduct medical expenses that total more than 7.5 percent of your adjusted gross income. This includes mileage for traveling to and from the doctor.
Homeowner Tax Credits
Many people know about the tax credit for first-time home buyers. There’s also a smaller tax credit for other home buyers. This isn’t a deduction as such. It’s actually a tax credit, meaning you’re going to pocket more of it than if it were a deduction. Another similar deduction is a $500 for single filers and $1,000 for married couples against real estate taxes.
Non-Cash Charity
You know that you’re allowed to deduct certain charitable cash contributions, but did you know that you’re allowed to deduct non-cash donations as well? The IRS has a schedule for deductions for just about every item that you might have donated. Do you remember that box of junk you dropped off at the Salvation Army? Make sure that you get a receipt in case of an audit. The items have to be in decent condition when you donate them and you can only claim their resale value, but otherwise this is a great example of trash to treasure.
Health Insurance Premiums
Few people know that health insurance premiums can count as “out of pocket health care costs.” Again, your premiums and other out-of-pocket medical expenses have to total more than 7.5 percent of your adjusted gross income and you can only deduct that portion of these costs that are above that. When you start keeping track of all these expenses, you might be surprised at how quickly they add up.
State Taxes
Here’s a big surprise: You have the opportunity to deduct state and local income and sales tax. First, you have to pick one or the other: Income or sales tax. If you live in a state with an income tax, you are almost certainly far better off deducting income tax instead of sales tax. You must then consult tables provided by the IRS that tell you how much you can deduct based on how much the tax rate is in your state. Even people who choose to deduct income taxes can deduct certain types of state sales taxes. Airplane, car and boat taxes can be added on top of your state income tax deduction. You can also deduct the cost of taxes on homebuilding materials. If you’ve spent a lot, you might want to opt for the sales tax deduction. Knowing which is best for you can be difficult. Fortunately, the IRS provides you with a calculator to help you decide which deduction is best for you.
Investment-Related Expenses
Do you invest in the market at all? Including through a group or company plan? Congratulations. The IRS considers you an investor. This means you can deduct just about anything related to investment. Think of broker’s fees, mileage for driving off to your investment advisor, the safety deposit boxes where you keep important investment papers or even the money you spend on investment magazines counts as an itemized deduction.
Working Parents
Workng parents are entitled to a whole host of deductions. Childcare and nanny services qualify for as much as a $3,000 deduction for a single child or $6,000 for multiple children under the age of 13. The amount you are allowed to deduct is a function of your gross adjusted income, but varies from 20 percent to 35 percent up to the limits mentioned above.
Tax Prep
Lastly, remember that you can deduct any expenses related to preparing your taxes. This includes whatever you pay a tax preparer, as well as mileage that you rack up going to and from a tax professional. Are you paying any legal or accounting fees for your taxes? That’s tax deductible, too. Do you talk to your lawyer about taxes? You can deduct the money you spend on his time.
“Commonly Missed Tax Deductions” was written by Nicholas Pell.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.
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