Most Common Overlooked Tax Deductions

Do you prepare your own taxes each April in hopes of saving a couple of bucks on tax preparation?  While doing your own taxes will save you money in tax preparation; it could also cost you if you are unaware of all of the available deductions. If you are doing your taxes yourself there are some tax deductions that are commonly overlooked. If you aren’t aware of these deductions you might just be shorting yourself out of a much larger tax refund check or paying in more than you need to.

1.  Child-care Credit:  A credit is even better than a deduction as credits reduce your tax liability dollar for dollar.  You can deduct up to $6,000 in child-care which could save you an additional $200 on your tax bill.

2.  Out-of-Pocket Charitable Contributions:  If you paid into a charity through a payroll deduction you can check the total you paid on your December check stub.  You can even claim 14 cents per mile if you drove for a charity.  You can also deduct things such as postage paid to mail school fundraising information and ingredients used to bake for a charity.

3.  State Sales Taxes:  This deduction has been extended through 2011.  The IRS (Internal Revenue Service) has tables you can use to calculate the deductible amount for your state.  There are even additional deductions of sales tax paid that you can take.

4.  Student Loan Interest paid by a Parent:  If your parents are paying back a student loan for you, the IRS still holds you as the person liable to repay the loan.  This means that you are eligible to deduct up to $2,500 of interest paid by a parent on your student loan.

5.  Job-hunting Expenses:  You can deduct expenses related to searching for a job in your current field; but, you cannot deduct job-hunting expenses for a first-time job search.  You can only deduct job-hunting expenses if you are itemizing your deductions.  You will need to place this deduction under ‘miscellaneous expenses’ and the amount of your total miscellaneous itemized expenses cannot exceed 2% of your AGI (Adjusted Gross Income).  Some deductible job-hunting expenses include employment agency fees and cab fare as well as food, transportation and lodging on overnight job searches and the cost of printing your resume’.

6.  Moving Expenses to Take Your First Job:  Your new job must be at least 50 miles away from your original home.  You can deduct the costs incurred in gas, and transportation of people and goods to your new address. 

7.  Refinancing Points:  You get to deduct points over the life of the loan when refinancing a mortgage.  You can save a little money on your tax bill by deducting 1/30 each year if you have a 30-year mortgage for example.

8.  Making Work Pay Credit:  You will need to file a Schedule M if you want to reduce your tax liability using the Making Work Pay Credit.  The deduction is $400 if you are filing ‘Single’ and $800 if you are filing ‘Married’. 

9.  Credit for Energy-Saving Home Improvements:  This credit applies to years 2009 and 2010 combined.  You can claim 30% of the price you paid for energy-saving items such as windows, outside doors, certain sky lights and energy-efficient water heaters, furnaces and central air conditioners. 

10.  First-time Home Buyer Credit:  You qualify for this tax break if you bought a new home by April 30, 2010 and haven’t owned a home in the three years preceding your home purchase.  The First-time Home Buyer Credit also applies to people who have entered into a binding contract to purchase a home by April 30, 2010 and who have also successfully closed the deal before September 30, 2010.

11.  Reinvested Dividends:  When your funds dividends are reinvested automatically to buy extra shares this results in an increase in your tax basis in that fund.  If you forget to include the reinvested dividends in the basis, you will end up being taxed twice for the same dividends.   If you are not sure how to utilize this deduction you can ask your funds’ provider for help.

12.  Military Reservists’ Travel Expenses:  If you are member of the military reserves and travel over 100 miles to stay overnight at a convention you can deduct some travel expenses.  You may be able to deduct parking fees, tolls and mileage to meetings and other events.  You can take this deduction whether you are itemizing your deductions or not. 

13.  Health Insurance Deduction to Reduce Self-Employment Tax:  Business owners have always been able to deduct health insurance costs from their AGI.  Now they can also deduct them from their self-employment tax as well.  This write-off is not on a separate line or clearly visible so it is easily missed if you are not looking for it.

14.  Jury Pay Turned Over to Your Employer:  If you worked for a company last year that required you to turn over your jury duty pay you are entitled to deduct the entire amount.  There is not a separate line for this deduction; but, it gets added in with the other write-offs on line 36.  You can write “jury pay” on the dotted line. 

You don’t want to let the government keep money that you are entitled to.  It is important to do your research.  Knowing all of the deductions available to you is the best way to minimize your tax bill or maximize your tax refund.