12 Most Commonly Missed Tax Deductions

12 Most Commonly Missed Tax Deductions

It is the time of year where we want ensure we capitalize on every opportunity to reduce or eliminate tax liability. However, the tax codes can be complicated and confusing resulting in legitimate tax deductions that are missed. To ensure you pay the least amount of taxes possible, or get the highest amount as a refund, review these commonly missed tax deductions.

Student Loan Interest up to $2500 is deductible each year. This deduction may be phased out if you have high adjusted gross income (AGI). If you are married, you must file jointly, and the student loans must be in your name to take the deduction. This deduction directly reduces taxable income and can be taken even if you do not itemize.

Tuition and Fees Deduction up to $4,000. This deduction directly reduces income and you do not need to itemize to take advantage of the deduction. It covers qualified higher educational expenses for yourself, your spouse or dependents and comes with maximum income limits. Other higher education tax benefits include two separate tax credits: The Lifetime Learning Credit and the American Opportunity credit. Both of these are tax credits, not deductions, and directly reduce your tax liability in the years you qualify. You may take the deduction or credit that gives you the highest benefit.

Charitable Contributions and Miles Deduction can be deducted in three different forms. Donations can be deducted if you itemize on your taxes and must be made to qualified organizations. Donations to individuals are not deductible. When deducting items, you are able to take the fair market value of the item. You must also subtract the value of any benefit you receive, such as tickets to an event. Cash contributions must accompany a receipt on order to qualify. Donations over the amount of $500 must be itemized on a separate form, and donations over $5,000 must also include an appraisal. The deduction that is most often missed is the ability to deduct volunteer miles. You are able to deduct actual vehicle expenses (cost of gas) or you may deduct the miles you drove your personal vehicle. This is lower than business miles, however, you are able to deduct 0.14 cents a mile for volunteer work.

Taxes on Reinvested Dividends. Often brokerage accounts are set up to have the dividends re-invested. When dividends are re-invested the cost basis of the investment increases with each re-investment. The higher cost basis can then be used with calculating gains after a sale, reducing your tax liability. Whether you pay taxes on the account annually or when you withdraw the funds from a tax deferred retirement account, the taxes are based on the sales price subtracted from the cost basis. When you fail to add reinvested dividends to the cost basis, you can end up increasing your tax liability.

Dependent Care Tax Credit. Tax credits directly reduce your tax liability and are therefore very valuable. The dependent care tax credit is available for those who pay care providers to watch your children. Day care, after school care, and in some cases summer camps, can count towards your child care credit for children under the age of 13.

Mortgage Points and Mortgage Insurance. Most filers understand the value of being able to deduct interest from a mortgage loan on taxes, for those who itemize. Property taxes are also deductible. What is less commonly known is that points paid during a refinance or purchase can be deducted, along with the cost of mortgage insurance. Other deductions included under the “mortgage interest” line on the tax form include late payments and even prepayment penalties that were paid the previous year. All of these items and several others are lumped in the category of mortgage interest for tax deduction purposes.

Moving Expenses directly reduce income and you can be taken even if you do not itemize. To qualify for this deduction, you must take a job in a similar field of work, move more than 50 miles, and the move must happen within a year of starting the new job. Even those who are self-employed may qualify for the moving expense deduction if certain criteria are met. The costs of finding the new job are also generally tax deductible.

Unreimbursed Employee Expenses are typically deductible if you spent money required for the job, that your employer did not reimburse you for. Some common expenses that fall into this category include uniforms, tools, safety equipment, passport costs, travel expenses, cleaning and laundry, subscriptions to professional publications or journals, and use of your personal vehicle required for the job.

Jury Duty Pay and Expenses. Regardless of how small your pay is for serving on a jury, the amount is reported to the IRS, and must be included as income on your tax returns. You are able to deduct expenses which might include mileage and parking fees. Many employers choose to pay employees their regular pay when they serve on a jury. In this case some employers have the employee sign the check for jury duty over to them. If this is the case, then the jury duty income can be deducted, because you did not actually receive the funds.

State and Local Taxes. Those who itemize deductions may also deduct state and local taxes paid for the previous year. This might include income taxes, property taxes, and sales taxes that were paid. The catch is that you may also receive a 1099-G from the state and you must include the refund as income, which may be taxed the following year.

Gambling and Casualty Losses. Gambling losses can be deducted, but only to offset winnings. This deduction is only available to those who itemize. If you have gambling earnings that are reported, this deduction may reduce the amount of taxes you must pay on those winnings. Lottery, raffles, horse racing, casino winnings and even bingo might be deductible. Meticulous records must be kept in order to qualify. Other losses that might be deductible include damage to your home or vehicles due to a natural disaster, vandalism, or other disaster than was not covered by insurance. Typically, these losses must amount to more than 10% of the property’s value to qualify.

Retirement Savers Credit offers a tax credit for contributions that are made to a qualified retirement plan. This tax credit essentially gives you a double deduction for Traditional IRA and 401K contributions. It also provides a tax benefit up front for Roth contributions. The credit is up to 50% of contributions and is based on your AGI (adjusted gross income), which caps out at $61,000 for those who are married filing jointly. For lower incomes this can be a significant tax credit as it comes directly off any taxes owed and has the ability to increase your refund, all while helping you save for retirement.

Getting the most out of your tax deductions can free up funds to help pay down debt or increase savings for the coming year.