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In today’s challenging financial times, it’s crucial not to miss any opportunity to save money – especially on your taxes, since they can be a significant expense. Below, we’ve listed some deductions that could be easy to overlook. If you feel that any of these deductions apply to you, it would be wise to explore the links provided, to be sure that you are eligible and, if so, that you are getting the maximum deduction. Tax laws and regulations can be confusing so, if you have any questions, you may want to consult a tax professional, or the IRS, before applying for the deduction on your tax return.
1. Student Loan Interest Incurred by Parents
In previous years, when parents paid back a student loan used by their child, they would not be granted a tax reprieve. The law stated that to receive the deduction, you had to be liable for both the debt and pay it yourself. Now, there is an exception. If parents pay back the child’s loan, the IRS views it as they bequeathed money to their son or daughter who then paid the debt. Therefore, children who are not claimed as dependents can qualify to deduct up to $2,500 of student loan interest paid by their parents. You can read more detailed information about this topic in the IRS Publication 970.
2. Child Care Expenses
If you have a child (or children) who qualify as your dependent(s), you can deduct expenses paid for a childcare provider. This phases out at higher incomes and in order to qualify, both spouses must work, or the one that doesn’t must be a student or disabled. Eligible programs include daycare, before and after school programs, and day camps, however overnight camps are not eligible. You can read more detailed information about dependent care deductions in the IRS Publication 503.
3. Job Hunting Expenses
If you incur expenses while looking for a new job in your current occupation, you can deduct certain costs including resume preparation and employment agency fees even if you don’t get the new job. Be aware though, that a taxpayer taking their first job cannot deduct job search expenses but can claim certain moving expenses incurred for getting the first job. For more detailed information on job related expenses, refer to IRS Publication 529.
4. Job Expenses
If you are employed by a company and incur job-related expenses for which you are not reimbursed, you can write off the cost of those items if they are directly related to your work. This would include work uniforms, tools required for your profession, office supplies, a computer, or even a phone if it is used exclusively for your job. More details on eligible job expenses can be found in IRS Publication 529.
5. Sales Taxes
If you live in a state that does not enforce an income tax, then you need to choose between deducting state and local income taxes, or state and local sales taxes. For most people living in income-tax states, the income tax deduction is the better opportunity. The IRS has charts that list how much can be deducted for people in states with sales taxes. Also, if you purchase a vehicle, (airplane, or boat) then you can add the state sales tax you paid, up to the amount set in the IRS chart listed for your state, to ensure the sales tax rate you paid does not go over the state’s general sales tax rate. Apply the same principle to any home building materials bought. For further instruction, refer to the calculator on the IRS website.
6. Charitable Contributions
Most people know to deduct their church contributions or donations to other charitable organizations, but don’t forget to deduct any out-of-pocket expenditures while you are helping others in smaller ways. For example, if you made a casserole for the church or a soup kitchen, the ingredients used can be included in the deduction. Another example, is the cost of stamps bought to use for your child’s school fundraiser. In addition, if you use your car for a charitable event, keep track of the mileage, because you can generally deduct 14 cents per mile. Lastly, if you cleared out your closets to give to a charity, remember the value of the clothes, furniture, toys and other items is deductible. Always get a written receipt for your records in case you get audited. You can read details about charitable deductions in IRS Publication 526.
7. Medical Expenses
If you had medical and dental expenses that were not covered by insurance, you may be able to deduct those from your taxable income. Out of pocket expenses for laboratory work, therapy, nursing services, surgery, and even goods such as crutches, bandages, and wraps should not be overlooked. These expenses are only deductible if they exceed 7.5 percent of your adjusted gross income. You can read details on what is eligible in IRS Publication 502.
8. Casualty and Theft Losses
Casualty losses can result from the damage or loss of your property due to any sudden, unexpected event such as a fire, flood, or storm. Theft is considered any illegal taking of your property. If you incurred losses due to either of these you can generally take a deduction in the year it occurred. You can read more about how to claim a deduction in IRS publication 547.
9. Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a refundable tax credit, not a deduction, designed to help low-to-moderate income workers and families keep more of what they earn. Credits are more valuable than deductions, because a credit is deducted directly from the amount of tax you would normally pay. Tens of millions of families or individuals who have been previously considered “middle class” could now be classified as “low income” if they have lost their job, work less hours in the past year, or had to take a pay cut.
Unfortunately, millions of lower-income families miss this credit every year. According to the IRS, about 25% of taxpayers who qualify for this credit fail to take advantage of it. If you feel you may have qualified for this, you should look into it, because if you were eligible to claim the credit in previous years but did not, you can file at any point during the year to get your EITC refund for up to three previous tax years. To see if you qualify, go to the IRS page dedicated to the EITC.
If any of the above situations apply to you, read the IRS instructions for more detailed information which may help you obtain a bigger tax refund this year. If you do not understand how to apply the deduction, or whether you qualify, you may want to consult a tax professional or the IRS. Free tax help is available by telephone, in person, or via the Internet. For more details, go to http://www.irs.gov. If you are going to have trouble paying your taxes, the IRS encourages you to contact them immediately.
*This is not intended to be, and is not tax advice. It is always wise to check with a tax professional if you have any questions before filing your taxes.
If you’ve been with the same employer for a number of years, you may not even remember setting up the number of allowances you wanted your employer to figure when calculating how much tax to withhold from your paycheck. The form you filled out is called a W-4. There’s a good chance that your situation may have changed since you first filled out that form, so it’s a good idea to re-evaluate your situation each year to determine whether you should adjust your withholding.
1. You May Be Able to Negotiate a Lower Amount If You Owe Back Taxes – Although the IRS is aggressive in its collection efforts, it does acknowledge on its website that if you do not have the ability to pay your back taxes in full, you may be eligible to settle for a lesser amount through an Offer in Compromise. 2. They Don’t Want To Seize Your Assets – Usually it’s too expensive to seize your physical property and hold a public auction, unless there are large sums of money involved and expensive property. But you still don’t want to be delinquent, because it’s relatively easy for them to seize a bank account or garnish wages, and they will if you are in default on your taxes and don’t work out a payment arrangement with them. 3. They Don’t Want to Take You to Court – A trial is relatively expensive so they will probably try to exhaust all avenues and be open to a settlement before going to court. If you have a dispute, there is an appeals process designed to resolve tax controversies without litigation. Remember though, the law is on the side of the IRS if you are at fault. 4. Their Agents Can Make Mistakes – The IRS is not infallible and when you are dealing with lots of numbers there’s always going to be mistakes. If you are convinced that they made the error, not you, file a complaint. 5. You Need to be Persistent and Organized – The IRS is a huge bureaucracy serving hundreds of millions of taxpayers, so don’t expect them to cater to you with outstanding personal service. If you have an issue, it pays to document as much as possible to support your case. And pay attention to dates and deadlines, because once they notify you of a hearing, etc. they aren’t going to send you friendly reminders, it’s up to you to be there. Note: This is not to be construed as tax or legal advice. If you have questions concerning your situation, you should consult with your tax and/or legal advisor. There may be additional information that you can use on the IRS website.
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