Admit it; you like to play accountant for a day when you are doing your taxes. You take advice from the bartender, friend, hairstylist, even your family. They mention deductions to you that you have never heard of. You might call an accountant, like me, and inquire about this deduction that you heard about. Usually, the deduction doesn’t exist. However here are some of the most-overlooked deductions.
Congress extended the deduction of State Sales Tax. You can deduct sales tax in instead of state income tax, if the amount of sales tax in more than the deduction of your state tax. Further for those taxpayers, like me, that live in a state that doesn’t have a state income tax, can deduct sales tax. To calculate this deduction, you can use the actual amount that you paid throughout the year, or you can use the amount that the IRS gives you based on your adjusted gross income. Further you can add the amount of sales tax that you paid on the purchase of a boat or a car to the amount that the IRS gave you. This is really a nice deduction.
The IRS says that the time that you use to volunteer for a charity is worth nothing. However, you can deduct things like mileage to and from the charity as well as any other mileage that you may have used. If you baked cookies for church, or donated a dish for pot luck, those items are deductible as well. Don’t forget the food that you may have donated for a food pantry.
Did you know that, outside of being a really nice gesture, paying a student loan for your child is a tax deduction to the parents? It’s true. The IRS treats these payments as a payment to the child who then would pay the student loan. The best part is that the child doesn’t have to be claimed by you as a dependent. You can deduct up to $2,500.00 of student loan interest provided your adjusted gross income is below a certain number.
If you are one of those unlucky Americans that is out of work, there is some good news; you can deduct job hunting expenses. These expenses are subject to 2% of adjusted gross income, and are deducted on Schedule A. These expenses include:
1. Transportation Costs at 55.5 cents per mile. Don’t forget those parking fees and toll costs
2. Food and lodging expenses if your job search takes you away from your personal residence over night
3. Employment Agency Fees
4. Cost of printing resumes, business cards, postage, and advertising
These costs add up, and they are deductible.
If you moved 50 miles away from your old job to your new job, your moving expenses are deductible. This is an above the line deduction. You can deduct transportation of goods, lodging, meals, and mileage of 23 cents per mile.
Self-employed individuals can deduct Medicare Premiums. The deduction is for Medicare Part B and Part D as well as the cost of supplemental Medicare policies. This deduction is available above-the-line, and is not subject to the other rules for medical deductions.
May working families fail to claim the Child-Care Credit. The credit is available to parents that pay daycare costs, or babysitting costs for the care of their child aged 12 and under. The credit is a dollar for dollar credit against your income tax liability. To qualify, each parent must receive earned income. Earned income is income from work reported on Form W-2, or self-employment income reported on Schedule C or Schedule F. The credit is worth between 20% - 35% of the actual amount that you paid in child-care expenses. Don’t forget this hefty tax credit.
You may be able to deduct the points you paid on the refinancing of your mortgage. This deduction has to be spread over the life of the new mortgage. For instance let’s say that you paid $2,000.00 in points to refinance your mortgage into a 15 year term. You may deduct 1/15 of your payments each year until you have deducted all of the payments.
The American Opportunity Tax Credit is good for the first four years of post-secondary education. The maximum tax credit is $2,500.00, and is available to taxpayers with a modified adjusted gross income of $80,000.00 or less for individuals, and $160,000.00 or less for those that are married. The good thing is that if the credit exceeds your liability then you can receive a refund of the additional credit.
These are just some of the most overlooked tax deductions that I see people miss.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, and Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle.