It is that time of year again. Now that the ball has dropped on 2011, it’s time to celebrate the beginning of tax season. In order to help get you organized and prepared for the grueling task of filing your taxes, here are some tax deductions that are often overlooked. By taking advantage of them, you have the potential to save hundreds or thousands of dollars.
1. Sales and Income Tax Many filers forget to include state sales and income tax as deductions. If you live in a state that doesn’t impose an income tax, adding up all the tax you’ve paid on personal and household items can really mount up. On the other hand, if your state does have an income tax, it’s usually a better strategy to claim that as a deduction for more savings unless you made some high-ticket purchases such as a car or boat.
2. Dividends If your investments have earned you a return this year, you can save money if you take advantage of special tax breaks. If you reinvest your dividends to purchase more shares rather than taking the income they’ve generated, you’ve reduced your current tax liability. This is one deduction a lot of investors miss.
3. Demutualization If your insurance company switched its status from being a mutual insurer and began offering stock to stockholders, this process of demutualization will save you money if you sold your shares based on what the share were worth when they were distributed to you as a former policyholder.
4. Charitable Donations Out-of-pocket charitable contributions are often overlooked, especially if they were in the form of many small donations rather than a few large ones. If you’ve covered the cost of postage, baked cookies for fundraisers or given rides to the clients of nonprofit organizations, save your receipts. If they total more than $250, you can deduct the amount if you have documentation from your favorite nonprofit. If you provided rides or did other significant driving, claim 14 cents per mile for this deduction.
5. Childcare If you’re a working parent and your kids spend part of the day with a sitter or in child care, claim those expenses as a tax credit. If you have childcare reimbursement through your place of work, you can easily overlook the additional costs you incur beyond the $5,000 or $6,000 allocated by these accounts. Don’t miss out on significant savings; save the receipts for sitters and after-school care. If your children are older and in college, don’t forget to deduct the interest you’ve paid on their student loans throughout the year.
6. Job Search Job losses and career changes aren’t all bad. If you were looking for a job in your previous field; had business cards printed; mailed out resumes; drove to an interview; paid for meals, lodging, and parking for an overnight trip or paid for advertising or employment agency fees, you can deduct those costs up to 2 percent of your adjusted gross income.
If you are a first-time job seeker, you can’t claim those deductions, but you can claim your moving expenses if the new job is more than 50 miles from your old place of residence. You can claim the costs of moving your belongings to the new site, plus 16.5 cents for driving your vehicle there as well as parking and toll fees.
7. Mortgage Interest and Remodeling If you’re a homeowner, you’re luck continues. If you remodeled your existing home, deduct state sales tax for building materials if you’re itemizing. If you bought your house, be sure to claim the interest paid on the points on your mortgage. If you’ve refinanced, you have to distribute the points interest over the life of the mortgage. If you’ve made your home more energy-efficient, you can get a 30 percent credit of the purchase price, up to $1,500.
8. Military Travel If you are a member of the National Guard or are a military reservist, part of your travel expenses for attending meetings or drills more than 100 miles from home and overnight stay are deductible even if you don’t itemize. You can write off all your lodging cost and half your meal expenses, as well as mileage and tolls if you drove your own vehicle. Mileage is reimbursed at 50 cents per mile.
9. Self-Employment With widespread job loss, many Americans have switched to self-employment. This freedom comes at a price. These workers not only have to buy their own health insurance, they also pay a hefty self-employment tax. Make sure to deduct the cost of health insurance premiums you pay for yourself and your family. This reduces your self-employment tax. You’re going to have to dig a bit through Schedule SE. Your health insurance figure from Line 29 is subtracted from your calculated self-employment tax on Line 3.
What other commonly overlooked tax deductions can you think of?
This article was written by Bob who runs ChristianPF.com, a personal finance blog tackling the topic using Biblical principles.
- Tax Tips for the Self-Employed (turbotax.intuit.com)
- Sales Tax Deduction Extended Through 2007 (turbotax.intuit.com)
- 10 Commonly Forgotten Tax Deductions (money.usnews.com)
- Home Ownership Tax Deductions (turbotax.intuit.com)
- Nine Tax Deductions You Shouldn’t Even Think About Claiming (walletpop.com)
- 2010 Freelance Tax Basics (deliberateink.com)