Tax Day is Approaching, Don’t Forget These 11 Commonly Overlooked Deductions
Every year, taxpayers who itemize their returns claim about $1.2 trillion in tax deductions. Taxpayers who take this easy route and use the standard deduction claim less than $750 billion in deductions. Want to make sure you’re keeping as much of your money as you’re entitled to? Make sure you don’t overlook these tax deductions when you file this year.
#1. Earned Income Tax Credit (EITC)
This isn’t a deduction but a tax credit, a far more valuable way to reduce your tax liability. According to the IRS, 1 out of every 5 taxpayers who qualify for the Earned Income Tax Credit (EITC) do not take it. This is most likely to happen when you have a change in income that qualifies you for the credit when you haven’t been eligible in past years. This tax credit is worth anywhere from $506 to $6,269 for 2016.
#2. Wedding Expenses
If you got married this year, you may qualify to deduct some of your wedding expenses as charitable donations. Getting married at a historical site or church can allow you to deduct the fees you paid to book the venue. You can also deduct donations of any leftover food, flowers, decorations, and even your gown if you donated it to charity. Make sure you only deduct the fair market value of items you donate, however.
#3. Property Damage to Your Home
If your home suffered major damage that wasn’t fully covered by your insurance policy, you may qualify for the casualty deduction. With this deduction, you can write off some of your unreimbursed damage and losses to vehicles, household belongings, and your home caused by an unusual or unexpected event like a serious car accident or natural disaster.
#4. State Sales Tax
Many taxpayers forget they can deduct sales tax, but this is one good reason to keep your receipts. This deduction makes the most sense if you live in a state without income tax as you need to choose between deducting local and state income taxes or state and local sales tax. Sales tax is usually less than income tax. There are two ways to deduct state sales tax: you can either save your receipts and add up the total sales tax you paid for the year (the best option) or deduct the standard sales tax deduction amount for your state provided by the IRS.
If you bought a home and furnished it, paid for a wedding, bought expensive jewelry, purchased a lot of electronics, or bought a car or boat, it’s definitely worthwhile to add up your receipts.
#5. Medicare Part B and D Premiums
Medical expenses can add up to thousands over the course of a year. Don’t forget to consider Medicare B and D premiums, which can be deducted as a qualifying medical expense. You can also deduct Medicare Part A premiums if you are not eligible for Social Security and enrolled voluntarily in Medicare A. Remember you can only deduct medical and dental expenses that exceed 10% of your Adjusted Gross Income (AGI) (or more than 7.5% if you or your spouse is at least 65 years old).
#6. Tax Preparation Fees
Did you pay for tax preparation? You can deduct the expense on Schedule A if you itemize. You can deduct the cost for professional tax preparation as well as paid services like H&R Block and Turbo Tax. If you used a credit or debit card, you can even deduct the convenience fees you paid.
#7. Educator Expenses
Despite teacher salaries being too low, most teachers report paying money out of their own pockets for school supplies for students. According to one study, the average teacher spends $500 per year on classroom supplies, but many spend more. If you were an eligible educator in a K-12 school working as a counselor, teacher, aide, or administrator, you can deduct up to $250 you personally paid for ordinary back-to-school supplies for the classroom. If you have more than $250 in deductible expenses, the rest can be deducted on Schedule A as an itemized deduction but it will be subject to the 2% limit.
#8. Retirement Savings Contribution Credit
If you made contributions to a 401(k), retirement plan through your job, or a Roth or traditional IRA, you may qualify for the saver’s tax credit. This credit is worth up to $1,000 for individual filers who contributed at least $2,000 to a retirement account while married joint filers can qualify for up to $2,000. To claim the saver’s credit, you need to meet an income requirement based on your filing status.
#9. Hobby Expenses
The IRS allows you to deduct some hobby expenses under “miscellaneous deductions.” Just remember that you can only deduct the income you generate from the hobby, not any expenses. If you breed dogs as a hobby and sell puppies for $500, but you spent $1,700 on kennels, food, and supplies, you can only deduct the $500.
#10. Student Loan Interest Paid by Parents
In previous years, if the parents made payments on a child’s student loan debt, no one received a tax break. There is now an exception. When parents pay off a student loan for a student, the IRS treats the situation as if the parents gave the money to the child, who used it to pay off the loan. If a parent made payments on a student loan on your behalf, you can qualify for a deduction of up to $2,500 of student loan interest.
#11. American Opportunity Credit
This tax credit is worth up to $2,500 per year for eligible students toward qualified education expenses the student paid for the first four years of higher education. Unlike the older Hope Credit, the American Opportunity Credit is good for all four years of college. It’s based on 100% of the first $2,000 you spend on college expenses and 25% of the next $2,000 you spend. You can receive the full credit if you have a modified AGI of $80,000 or less (or $160,000 or less for married couples filing jointly).