Common Overlooked Tax Deductions

Tax deductions can increase a refund amount and decrease the amount that’s owed. Taxpayers are overpaying taxes and losing money each year by overlooking tax deductions they are qualified to claim. Here are some of the most common tax deductions that are being overlooked.

Claiming dependent exemptions

Not knowing is the biggest reason individuals fail to file a dependent on their tax return. The majority of taxpayers don’t realize they may be able to claim someone as a qualified relative to claim a tax deduction. The safest route when listing dependents is to list everyone living in the home and the amount of their income, if they’re employed.

Tax software or a professional tax preparer will run qualifying relationship tests to rule out those you cannot claim. By doing it this way, a taxpayer can be sure to get the dependent deductions he or she is entitled to claim.

Tuition and fees deduction

Taxpayers who paid educational tuition and fees for themselves, a spouse, or a dependent may qualify for a deduction that will lower the adjusted gross income on their tax return. Unlike most deductions, this one does not require the taxpayer to itemize.

The deduction cannot be claimed by anyone who files as married filing separately, or by anyone who can be claimed as a dependent on someone else’s tax return.

Instead of the tuition and fees deduction, you may be able to claim the American Opportunity credit or the Lifetime Learning credit.  You cannot claim both.

Expenses paid for with tax-free scholarships and fellowship grants do not qualify for the deduction.

Moving expenses

A taxpayer may qualify for a deduction if he or she had to move due to change in their job or business or if it was because they started a new job or business. The moving expenses are deductible but meal expenses aren’t.

In order to claim this deduction, two qualifications must be met. One is the “distance test”. To qualify, a taxpayer’s new job must be fifty miles farther away from his old residence than his old job was. If the taxpayer was unemployed, the new job has to be fifty miles from their old home.

The other is the “time test”. The taxpayer must work full time which is, by IRS standards, thirty-nine hours per week during the first twelve months immediately following relocation. For self-employed individuals the time test is a little stricter. If self-employed an individual must work thirty-nine hours per week during the first twelve months, and a total of seventy-eight weeks during the first twenty-four months immediately following the move in order to claim the deduction.

If the taxpayer is military, they are not required to pass the time test to be eligible.

This deduction also comes directly off the adjusted gross income amount on the tax return.

Earned income tax credit

This is another credit that is often overlooked when filing taxes.  People think if they haven’t made enough money for the year, they aren’t required to file taxes. This is true; however, if they have children, filing a return is usually the better choice. By filing they will be able to claim the Earned Income Credit which can range anywhere from a couple of hundred dollars to more than five thousand dollars. By not making over a certain amount of income, an individual is not required to file, but there are times when they may just want to.

Child and dependent care

A lot of people forget to claim the money they pay for childcare. If you have a child under 13 years old that you had to pay someone to take care of while you worked or looked for work, you may be able to claim the Child and Dependent Care credit. This includes sending them to summer school, as long as it was a work-related expense.

Charitable donations

Some people don’t know they can deduct certain out-of-pocket expenses for volunteer work. The mileage is deductible, along with any tolls or parking fees.

Donated items also qualify for a deduction. Get a receipt for any items you donate to an organization. This receipt may also come in handy if the IRS requests proof.

The most overlooked contributions to charity are the ones that are automatically deducted from your paycheck. Make a note prior to filing your taxes so this contribution isn’t overlooked.

Job-search expenses

If you looked for a job that was considered to be in the same line of work that you previously did, you may qualify for a deduction when filing your taxes. Some things that are deductible as job expenses are the cost of resumes, the cost of traveling, and employment agency fees.

These are only a small number of the tax deductions and credits that a taxpayer may be eligible to claim when filing taxes. Because the rules for filing often change and new deductions and credits become available, it is safer for individuals to allow professional tax preparers to file their income taxes. Overlooking deductions can possibly cost a taxpayer thousands of dollars.