Doing your taxes is not a walk in the park; after all, there are so many variables that you need to consider. It can be so painful to realize that you forgot to include a tax deduction that would have lowered your tax bill. Some people fear the tax process and overlook some of the details when filing tax returns, and thereby, they miss certain crucial tax deductions.
The good news is that there are several tax deductions that you can take advantage of to reduce the overall tax expense this year. You should consider looking at the following tax deductions:
1. State sales taxes
One tax deduction is for the sales taxes. Deducting sales taxes off your federal income tax can be a huge money saver. You can properly itemize your deductions and claim either the state or local income taxes paid in the last year. If, for instance, you made a major purchase (e.g. a car or pricey office furniture) taking a sales tax deduction can be a good deal. The IRS has a calculator that can help you know clearly your potential sales tax deduction based on your income, state, and local sales tax rates.
2. Charitable gifts
In most cases, people overlook the non-cash charitable contribution deduction when they are filing their tax returns. As you give cheerfully to charitable work, you should determine fair-market value for the items. These out-of-pocket expenses for charity work qualify for tax deductions. For instance, if you make cakes for a charity fundraiser, you can deduct the cost of the ingredients you used to bake the cakes. You also need to have the receipts or itemize the costs in case of an audit. It is also advisable to give appreciated stock than writing a check for charitable work.
3. Student loan interest deduction
Each year, Americans pay $80 billion in student loan interest payments. If you are a graduate or a current student who benefited from the qualified student loan, you are eligible to deduct the interest you paid for the loan. Some of the ways in which you can qualify for the deduction is if you have paid interest on the qualified student loan within the current tax year, your filing status is not married filing separately, you are no one else’s dependent on tax returns, etc. In addition to this, you do not have to itemize to benefit from this deduction. This deduction can be up to $2,500 of the student loan interest paid.
4. High education expenses deduction
If you or your dependents paid for higher education, you can claim the Lifetime Learning Credit that is worth up to $2,000 per tax return. You can also claim the American Opportunity Credit that is worth up to $2,500 for the qualified education expenses. This can be a great money saver for you this year. Do not let the burden of education wear you down.
5. Mortgage refinancing points
When you pay points to reduce your mortgage interest rate, it becomes tax deductible. However, there is a difference if you refinance compared to if you just bought your home. When you purchase a home, it is possible to deduct the points fully on the year you closed the loan while for a refinance, the deduction is spread out evenly over the period of the loan.
6. Child and dependent care credit
Credits are more beneficial than deductions since they reduce the tax bill significantly and you cannot afford to miss out on this one. If you pay for child care while you work, you can qualify for a tax credit worth between 20 percent and 35 percent of the amount you pay. It is even a better deal if you pay the child care with pre-tax dollar in a case where your boss offers a child care reimbursement account. Tax credits help reduce the burden of child care.
7. Self-employed tax deduction
If you are self-employed, you may find yourself paying huge self-employment taxes. Such a tremendous tax obligation can be so tough. However, you can reduce a sizable amount of the tax through self-employment tax deduction that helps to adjust your income. You can also benefit from self-employment health insurance deduction that enables you to deduct the full cost paid for health insurance you purchased for yourself, your spouse and/or your dependants.
8. Moving expense tax deduction
It is also possible to get tax deduction on job hunting expenses in the same trade or business that you have been in. Qualifying expenses are deductible even if you were not offered the new job. The job hunting expenses include resumes, postages, job counselling, telephone charges, and travel for interviews and employment agency fees that isn’t reimbursed by the prospective employer. However, these costs must exceed 2% of your adjusted gross income (AGI). To qualify for this deduction, you must be able to pass two tests i.e. distance test and time test. For distance test, you must be at least 50 miles farther away from your old home than your old job location was from your old home while in time test you must work full time for at least 39 hours during the first 12 months right after you arrive in the general area of your new job.
There are several tax deductions that you can take advantage of this year. Do not miss out. Most of them are hidden within the itemized deductions section. You can also visit the IRS website for more information on additional tax deductions. It is also important to note that tax laws change every year. You therefore need to keep on top of what is going on as far as deductions are concerned so that you can lower your tax bill significantly. Do not overlook most of the things as you do your tax returns. Keep to the details and consult when necessary. You can save a lot of money.