10 Tax Deduction Tips that Can Save you Hundreds
Have you ever wondered if you're missing something when it comes to tax season? The fact is you might be disregarding some of the most overlooked tax deductions in the book. But these deductions can save you a lot of cash.
If you're like most people, the aftermath of April 18--national tax day--may leave you with a giant hole in your pocket.
But it doesn't have to.
You don't have pay through the teeth when it comes to taxes. In fact, there are plenty of (totally legal) ways to save money.
Simply keep these 10 tax deduction tips in mind.
1. Charity Donations
While most people are aware that they can deduct large charitable donations, they tend to overlook the out-of-pocket expenses they contribute as well.
But this money is totally tax deductible. And even better, keeping good track of the money you spend on charity engagements can add up to big savings.
This includes spending money on food drives and even buying products for a school fundraiser.
That's why it's imperative to keep track of your receipts and the amount of money you spend. Additionally, one of the most overlooked tax deductions is using your car for charity purposes.
According to Kiplinger, driving your car for charity event allows you to deduct 14 cents per every mile along with any parking and toll expenses .
2. Moving Expenses
There are two situations that allow you to deduct your moving expenses on your tax return:
Relocation for your first job and relocation under a current employer.
Here's what you need to know about this deduction:
Moving expenses are not an itemized deduction. Instead, you deduct the total amount of your move from your taxable income.
However, there are several caveats. Firstly, your new job must be at least 50 miles away from your old home.
Additionally, individuals can only claim moving within a period one year of employment relocation. In other words, the move should correspond closely to the time of taking on a new job in a new location.
Finally, you have to work full-time (a total of 39 weeks if you're an employee or 78 weeks in the first two years if you're self-employees) in order for the move to qualify.
If your move is eligible, you'll end up with a decent sized tax return as long as you remember to deduct these key moving expenses:
- Any costs related to moving yourself, your family, and household such as packing, rental trucks, and short-term storage.
- The cost of gas--which you should deduct 19 cents per gallon for--plus the price of parking or tolls.
- Costs associated with longer moves such as staying in a hotel or temporary lodging.
3. Earned Income Tax Credit
Although not officially a tax deduction, claiming this credit on your return can make a big difference in the size of your return in 2017.
The earned income tax credit is among the most overlooked tax deductions. Why? Because a lot of the individuals who qualify for it don't file taxes.
Even if you make under $10,000, you should still file taxes, since this credit can actually apply to you.
For some individuals (who have a certain number of dependents) this tax credit can actually save you thousands.
So who qualifies for this credit and how does it work?
Eligibility for the EITC requires that you file as: the Head of Household, married filing jointly, single, or surviving spouse.
Those filing as head of household, single, or a surviving spouse must make no more than $14,880 in adjustable income if they claim zero children. If they claim three or more children, they cannot make over $47,955.
Indviduals who file as married must make a maximum of $20,430 without children, and no more than $53,505 if claiming three or more qualifying children.
Additionally, taxable investment income must be less than $3,400.
4. State Sales Tax
This is a relatively newer tax law, which is why it falls under the most overlooked tax deductions.
Tax payers now have the ability to deduct either their state income taxes or their state and local sales taxes depending on whichever is more.
This allows tax payers to deduct whatever sales tax they might have made, which is ideal if you made several large purchases.
Even better, those who live in areas that don't have income taxes, such as Florida, Nevada, and Texas, can deduct whatever sales tax you spent that year.
5. Dividends Reinvestment
This is one of those instances when ignorance is most definitely not bliss.
Contrary to popular belief, Dividend Reinvestment Plans (DRIPs) are subject to tax.
However, what investors often forget is that each new purchase of stock made through reinvested dividends increases their tax basis.
Remember, your cost basis (how much you spent to buy the share) is weighed against your capital gains.
In other words, how much you spent on shares is deducted from how much money you made.
Not reporting reinvested dividends can cost you hundreds, because without that figure your taxable gains appear bigger than they actually are.
Failure to include this number leads to a form of double taxation. Your dividends will be taxed the year they were reinvested, and again when you make a sale.
6. Job Search Expenses
Unless you were looking for your first job in 2016 (in which case you probably want to skip on to the next point), any job-searching costs are tax deductible.
To claim this deduction, your expenses just need to comply with a few rules:
- Your job hunt must have been in the same field as your current occupation
- Since job hunting costs fall under your miscellaneous expenses, these expenses must exceed 2 percent of your adjusted gross income.
- Long breaks between jobs (determined by the department of Internal Revenue Services) cannot be claimed as tax deductible.
Luckily, this means that are a wealth of job-searching related activities that are tax deductible. This includes transportation (gas, bus tickets, etc) and agency fees.
But it doesn't stop there.
Other job searching expenses that can be deducting are food and hotel expenses (if you're searching for jobs in another city) and the cost of stationary material for resumes, business cards, etc.
7. Tuition Costs
According to the IRS, deducting college tuition and fees from your taxes can reduce your "taxable" income by $4,000.
For a lot of people that's equal to a semester's worth of tuition.
This can be an incredibly useful deduction for parents or guardians helping a child through university.
And it can be even more beneficial if you have more than one dependent in college at the same time.
And what do you need to do to be eligible?
Well, you must pay for higher education that qualifies under the IRS guide. Additionally, the student for must be eligible as defined by the IRS, and the student must be yourself, your spouse or a dependent you claim on your tax return.
Keep in mind however that some fees don't apply, such as dorm room expenses, the cost of books or tuition, and transportation.
8. Eco-Friendly Home Upgrades
Again, this falls less under the category of the most overlooked tax deductions and more under the classification of overlooked tax credit.
However, you can't afford to miss out on this tax credit in 2016, since it's the last year you can claim it.
If you installed new insulation, windows, doors, or other energy efficient options, you may be eligible for credit up to $500 on your tax return.
So don't miss out. If you did any kind of upgrade to your home, no matter how small, this credit will be worth something.
And you just might end up walking away with some extra change in your pocket.
Additionally, individuals that installed energy equipment, such as solar panels, may be eligible for a credit up to 30 percent of the total cost of placing such systems, including installation.
9. Jury Duty Money Given to Employer
Some employers make the generous offer of paying your full salary while you're away on jury duty.
In return, employees are asked to turn over their jury duty fees to the company.
Here's where people get tripped up:
Your jury duty fees are considered taxable income by the IRS.
Don't make the mistake of letting yourself be taxed for income you didn't receive.
If you hand over the money to your employer, you can easily add that amount to your deductions.
10. Mortgage Refinancing Points
If you received your mortgage through a points system (where you paid fees to obtain the mortgage), you maybe able to deduct these points as prepaid interest.
There's a caveat however.
By refinancing your home, you're required to deduct points over the lifetime of the loan.
Often, home owners can forget to do this, since over that spread out time, the points don't add up to much.
However, over time, this money can add up, so don't waste a good opportunity to save.
Even better, in the year you pay off the loan, you're allowed to deduct the remaining points, which can add up to a huge chunk of change.
So make it a habit to keep track of your points and deduct them as interest on your refinanced loan regularly.
When it comes down to it, there's a lot you can do to save money on your taxes.
Odds are, there's more than one deduction that you're eligible for.
The problem is that these tax deductions are easy to overlook if you're not well-versed in tax laws.
That's why you should make an effort to stay up to date, and more importantly, consult an expert before filing your taxes in April.
As these most overlooked tax deductions demonstrate, simply being informed can mean the difference between owing money and getting a tax refund.
So if you're serious about saving money on your taxes (which is totally possible) then make it a habit to learn about and apply as many deductions as you're eligible for.
I mean, if you get hang on to your hard earned money, why wouldn't you?