Itemized deductions are expenses that you can claim on federal income tax returns which decrease your taxable income. These deductible expenses can have a huge impact to your tax bill. If you’re unsure of how to prepare your taxes, check out this Turbo Tax review to assist the process. It’s always painful when you realize that you forgot to include a tax deductible expense that could have lowered your tax bill. Here are some tax deductions that you definitely should not miss!
Sales, sales, sales! Tax, tax, tax!
You can deduct sales taxes or state income taxes off your federal income tax. Living in a state that doesn’t have its own income tax, can be a huge money saver. For example, if you’ve made a big purchase (like a car) this year, choosing to deduct the sales tax could be a better deal than the state income tax.
On the meds?
Contrary to what many people believe, the IRS does have a heart. Medical expenses can be costly, and they are sympathetic to the cost of insurance premiums (in some cases). If your medical expenses exceed 7.5 percent of your adjusted gross income, you can claim them as an itemized deduction for tax this year.
In addition, if you’re self-employed and responsible for your own health insurance coverage, you may be able to have 100% of your premium cost deducted. The cost will be taken off your adjusted gross income instead of being an itemized deduction.
Looking for work?
The cost incurred whilst job searching can be high. Initially it may seem not seem like a lot, but those costs add up quickly. If you’re trying to find a new job in the same field, you may be eligible for deductions.
If your job searching expenses exceed 2 percent of your adjusted gross income, any expenses over that threshold can be deducted. Consider deducting the mileage you put on your car driving to interviews, other transport costs and the cost of printing resumes.
Expenses for the unusual!
You can deduct expenses off your business income if it is used to benefit your business. You just need to document the reasons behind it. For example, a bodybuilder was approved to deduct the body oil he used in competition. In another instance a junkyard owner, was able to deduct the cost of cat food because it encouraged cats to hang around and keep the rodents away.
Being charitable pays off…
Charity related expenses including Car expenses, bus, rail and air fares, lodging, meals and taxi fares rare all deductible. You can even deduct your babysitter expenses when you’re volunteering for a charity, as long as you can prove it! For example, if you volunteer every week at a soup kitchen, you can deduct the costs associated with babysitting your children as long as you document the process.
A number of deductions geared toward college students are available. However that doesn’t mean those who have already graduated don’t get a tax break as well.
In an effort to increase your education, the Lifetime Learning credit provides up to $2,000 per year, taken off 20 percent of the first $10,000 you spend for education after high school. At higher income levels, this phases out, but it doesn’t discriminate based on age. Similarly, Tuition and Fees deduction also allows you to deduct $4,000 in expenses every year. Unfortunately you can only choose one of the two options.
If you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. In turn, it reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.
You will end up overpaying your taxes if you forget to include the reinvested dividends in your cost basis. You will need to subtract these from the proceeds of sale to determine your gains. Turbo Tax Premier has a useful tool that can help in this process.
Check out this article if you’re interested in how to obtain more tax credits that can earn individual taxpayers like yourself a refund.