Which Tax Deductions Are You Missing Out On?
Kiplinger reports that the 45 million taxpayers who itemize their deductions on income tax returns claim more than $1 trillion worth of deductions, while the 92 million taxpayers who use the standard deduction claim about $700 billion worth of deductions. That’s big bucks!
Missing even one deduction or tax credit can have a significant impact on your final tax bill (or refund), so whether you tackle your income taxes on your own or hire a tax professional to do them for you, it’s to your benefit to be aware the ever-changing IRS tax rules. Not only do yearly changes to the tax code affect you, but changes to your own life circumstances can also impact your tax situation.
Below are just a few of the commonly missed deductions and credits that might apply to you:
Child-care credit – If you work and pay for child care (daycare center, in-home daycare, or nanny services all apply), you can qualify for a tax credit of up to $3,000 for a single child or up to $6,000 for two or more children under the age of 13. Exact amounts depend on your gross income, and other rules do apply, so check with a tax pro to learn exactly how you can benefit.
Charitable deductions – Most of us think of the major donations we make to organizations throughout the year. But don’t forget about the little things—it all adds up! If you use your own money to perform a task for a non-profit (a mailing, for example), you can include those expenses as part of your total charitable contribution. Keep your receipts, and if you’ve spent over $250, be sure to have the charity document your gift.
Travel for volunteer work – If you use your own vehicle while doing volunteer work, you may be eligible to use the standard mileage deduction if you track the miles you drove in 2011. In addition, the cost of meals, public transportation, overnight accommodations, and gas are also deductible when you travel away from home to volunteer.
Job-hunting expenses – Did you look for a new job in 2011? If so, pull out all of your receipts during the time of your search. You might be able to deduct expenses for food, hotel, and travel if your search took you out of town for at least one night, fees paid to an employment agency, and costs of printing and mailing business cards and resumes. There are a few stipulations, though; this doesn’t count for first-time job hunters, and you must be looking a position similar to the one you had previously. Also, you can only write-off these expenses if they exceeded 2% of your adjusted gross income.
Medical expenses – If you’re itemizing your deductions, you’ll want to take a close look at all your medical expenses for the year. You can deduct the cost of special medical equipment, contact lenses, eyeglasses, hearing devices, long-term care insurance premiums, lead paint removal, and alcoholism and drug abuse treatment, to name just a few.
Educator deductions – All kindergarten through grade 12 teachers, instructors, counselors, principals, or aides in school for at least 900 hours during a school year in 2011 can deduct up to $250 ($500 if you are married, filing jointly) of qualified expenses from 2011. This would include books, supplies, software, and other materials used in the classroom.
American Opportunity Credit – Extended through December 2012 by the Tax Relief and Job Creation Act of 2010, this credit for education expenses is now available to those with higher incomes and those who owe no tax. You can get credit for the cost of up to $2,500 of college tuition and related expenses paid during 2011. The full credit is available to those who have a modified adjusted gross income of $80,000 or less, or $160,000 or less if you’re married and file a joint return.
Military tax benefits – Members of the National Guard or military reserve may qualify for a tax deduction for expenses incurred while traveling to meetings and drills. This only applies if you were over 100 miles away from home for at least one night. You’re not required to itemize to qualify for this one.
State tax payments – If you owed state tax when you filed your 2010 state income tax return, don’t forget to include that amount the total amount of your state-tax deduction on your 2011 federal return. You should also deduct all state taxes deducted of your paycheck in 2011 and any quarterly estimates that you paid, if you are self-employed.
That’s not all! You may qualify for other deductions if you sold your home in 2011, owned your own business, paid for legal services, paid for home improvements, and much more! You should definitely check with a tax adviser or an IRS representative if you have questions about expenses that might qualify for a deduction or credit.
Once you know that you are eligible for some of these deductions, the next step is to find the necessary documentation and receipts. If you’ve collected them in a shoebox throughout the year or threw them all into one big file, now would be the time to start organizing and categorizing. You might also consider help from a professional organizer to get your receipts in order. Come To Order can help you sort through last year’s receipts and devise a new filing system that is easy and convenient for you to use going forward.
A final note, the 2012 income tax filing deadline is April 17 this year, because April 15 falls on a Sunday, and April 16 is Emancipation Day, a holiday observed in the District of Columbia.
