10 Most Overlooked Tax Deductions
Millions of people overpay their taxes, according to DailyFinance.com. The reason for this is they don’t take all of the deductions they have available to them. The tax code remains complex, and taxpayers find it difficult to find all possible deductions. Keep a checklist of some of the top overlooked deductions that apply to you, and you won’t have to scramble at the last moment each year to find all the write-offs available to you.
You can deduct any expenses for job hunting, once those expenses exceed 2 percent of your income. These include expenses for creating a resume, cab fare, fees to employment agencies and for travelling out of town to find a job. You cannot claim these deductions for a first job.
Moving Expenses for a First Job
Though you can’t deduct expenses for looking for a first job, you can deduct moving costs if you have to relocate for that first job. You have to move more than 50 miles in order to qualify. The Internal Revenue Service allows you 23 cents per mile for the cost of transporting your household goods.
If you participated in any kind of fund raising for a charity, you can deduct your expenses. This includes ingredients for a dish you contributed to a bake sale, and materials used for posters, to give two examples. If you claim more than $250 in expenses, you need a document from the charity that supports your claim.
Student Loan Interest
As of 2012, you could deduct up to $2,500 in student loan interest. Note that you cannot deduct your full payments, because you pay on principal and interest. You can only deduct the portion of your payments that went to interest. If your parents paid the debt service, the IRS counts it as a payment to you, which you subsequently pay to the lender. This means your parents cannot claim the deduction if the loan is in your name, even if they paid it.
Self-employed people can deduct the payments they make to Medicare. The total of all of your medical expenses, including health insurance premiums, supplemental care insurance co-pays and Medicare payments must total at least 7.5 percent of your adjusted gross income.
Child Care Credit
The write-offs for child care are better than a deduction, because they are a tax credit. A tax credit comes directly off your taxes, whereas a deduction reduces your taxable income. For 2012, you could reduce your taxes by up to $3,000 for one child or a total of $6,000 for two or more children.
State Income Tax
If you owed state income tax on your last tax return, you can deduct those taxes from your next federal tax return. Even if you got a state refund, you may have paid state taxes. In fact, that means you overpaid state taxes. Deduct the portion the state kept.
State Sales Tax
If you live in a state that does not collect state income tax, you can benefit from deducting your sales tax. Add up the sales tax on all of your purchases and write it off of your taxable income. If you live in a state with income tax, the income tax deduction is probably higher than the sales tax deduction, and you can’t take both.
If you served on a jury and got paid, and your employer kept paying your salary, your employer may have demanded the jury pay. The IRS will tax you as if you kept the jury pay, unless you deduct it. You can deduct jury pay that you gave your employer.
If you travel for business, you have to pay extra fees for baggage at some airline counters. This charge is seldom included in the ticket price. You can deduct those extra baggage fees from your taxes.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.