5 Commonly Overlooked Tax Deductions
Few of us would consider ourselves “experts” in interpreting the IRS tax code. As a result, we often overlook even the most basic deductions when preparing our tax returns. Understanding these tax deductions can be incredibly helpful as they may lower the amount we’re required to pay federal and state governments by a considerable margin.
Tax deductions are typically offered on money spent for certain predefined purposes and are calculated on the basis of income. They essentially reduce the net taxable income of the taxpayer which in turn, lowers their entire tax liability – resulting in either a larger return or smaller tax debt.
Two main categories of tax deductions are available according to the law: standardized deductions and itemized deductions. Standardized deductions are based on your status of being single, married, etc. and are considered fixed-dollar deductions. Itemized deductions on the other hand are more dynamic as they are based on expenses which may vary from person to person.
Several of the most commonly overlooked itemized tax deductions include:
The home office deduction allows individuals to deduct expenses that are not otherwise deductible such as utilities and homeowner’s insurance. There are certain requirements you must meet to have a home office. These requirements help you to determine whether the area used in your home is your principle place of business for certain business functions. Some of these allowable deductions include: utilities, mortgage interest, property taxes, liability insurance, repairs and maintenance and even depreciation of your office area.
JOB HUNTING EXPENSES
Summertime often leads to major life decisions, such as buying a home, moving or a job change. If you are looking for a new job that’s in the same line of work, you may be able to deduct some of your job hunting expenses on your federal income tax return. These expenses may include money paid for job hunting and job related classes. You may even be able to deduct money spent on professional books and magazines, travel for interviews or costs associated with sending out resumes. Certain other expenses related to your job search may also offer substantial tax relief.
Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education. An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. In addition, there are several deductions you may be eligible to take including student loan interest and qualified education expenses paid during the year such as tuition and fees, room and board, books, supplies and other necessary expenses (such as transportation).
If you’re a parent saving for a child’s higher education you might consider participating in a state-sponsored 529 plan which allows taxpayers to either prepay or contribute to an account designated for paying a student's qualified higher education expenses. 529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary.
When you move, you’re already spending a lot of money to get all of your belongings from one place to another. You may have to pay for packing supplies, a mover, the moving truck, insurance and more. Fortunately, the IRS has designated certain expenses related to moving which can be deducted from your taxes. Many people don’t take advantage of these deductions because they either don’t know about them or think it is too difficult to decide what is deductible and what is not. A federally licensed Enrolled Agent can help determine what you may qualify for.
UN-REIMBURSED EMPLOYEE DEDUCTIONS
The taxes taken out of your paycheck can seem like a huge amount. However, saving your receipts may help you with tax relief, in the form of itemized deductions. To claim tax relief for un-reimbursed employee expenses, your deductions must have been paid for during the year of filing, used for your job (i.e. uniforms or shoes that aren’t worn outside of work) and considered a “normal and needed expenditure” that is common to your profession.
Of course, you’ll need to provide adequate proof of all itemized expenses to benefit from these IRS tax deductions. Keeping a detailed log of all receipts and transactions is critical to taking advantage of any tax relief offered.
William D. Truax and his friendly team of EAs and licensed tax preparers have been helping individuals and businesses take full advantage of the Internal Revenue Service’s tax relief program for over 30 years. They understand how important deductions are and offer a full spectrum of financial services to help you get the most out of your return.
In addition, Mr. Truax is a member of the Bar of the United States Tax Court – a privilege very few EAs are granted. He is also a fellow and Accredited Tax Advisor of the National Association of Tax Professionals and a member of the National Association of Enrolled Agents.
For more information, please visit www.truax.net or click below to schedule a free consultation today!