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10 tax breaks you didn't know you could get
When someone asks what your favorite season is, “Tax Season” is probably the last answer on your mind.
Paying money to the government once a year by filling out a series of confusing forms is low on anyone’s to-do list, but getting some of that money back in
tax deductions may be the silver lining you need to start the process this year.
There are plenty of common tax deductions available, and chances are you aren’t aware of them all. Here are 10 tax deductions you didn’t know you should be
1. Smaller Charitable Contributions
The question “What can I claim on my taxes?” is often met with a simple answer: charitable donations. Of course donating a large sum will land you a decent
tax break, but you may not be aware that the little things can add up, too.
For instance, shopping at the right places can be tax-deductible, like supporting your local Habitat for Humanity ReStore. Just make sure you acquire the proper forms to legitimize your purchase with
Donating things other than money, such as clothing, vehicles, or workout equipment, can get you a tax deduction as well. The Motley Fool notes one caveat with claiming
such donations on your taxes: “You're only allowed to deduct the fair value of used clothing or other goods, not what you initially paid for them.”
Another aspect of charitable contributions that often goes overlooked is any out-of-pocket expense you incurred while volunteering or contributing. If you
help prepare a spaghetti dinner for a fundraiser, you can deduct the cost of the ingredients on your taxes. According to the Fiscal Times, even
something like the cost of the gasoline you used while volunteering can be tax-deductible. Again, be sure to properly document everything to provide proof.
2. Child and Dependent Care Credit
While some taxes can be painfully steep, Uncle Sam cuts Americans a break when it comes to child care. The IRS defines the Child and Dependent Care Credit as
“credit for the costs of care for a qualifying individual to allow you to work or look for work.”
According to 2016 regulations, you are allowed to claim up to $3,000 of your money paid to childcare for one dependent, or up to $6,000 for two or more
3. Gambling Losses
Losing money through legal gambling endeavors may earn you a tax break. The government will pay you a small portion for that unusually-expensive trip to
Las Vegas or betting on the wrong horse at the races.
However, you may not be reimbursed for any more than your winnings at said gambling establishments. This means that if you spend an unsuccessful night
playing poker and lose $10,000, but win $1,500 a few months later, your deduction wouldn’t exceed $1,500.
4. Earned Income Tax Credit
The Earned Income Tax Credit is available for those with low-to-moderate income. This may be the most overlooked deduction out there simply because many
people assume they make too much money to qualify.
In many cases, this is not so. According to TurboTax’s
information on Earned Income Tax Credit
, “A married couple with three children and adjusted gross income of $53,267 or less could receive up to $6,242. An individual who earns $14,820 and has no
children may receive up to $503.” There are many variations in between, and self-employment counts as well.
Financial planner and author Louis Barajas encourages taxpayers to check each year to see if they qualify. As he says, “Just because you didn’t get it last
year doesn’t mean you won’t get it this year. This economy has been rough on a lot of people. A lot of people’s tax situations can change in a year. Tax
5. Sales Tax or Last Year’s State Tax
The ability to deduct either sales tax or last year’s state tax is one option you might be unaware of because it goes in and out of style with Congress.
For the past few years, the break has expired and been renewed, but it has finally earned a lasting place among annual tax breaks.
Kiplinger, in 2015 Congress brought back the deduction – which had expired in 2014 – and had it work ex post facto for the previous year. Congress then
made the deduction permanent.
You have the option to deduct either sales tax or last year’s state tax on your forms, and you may have an advantage depending on where you live. If you live in a
state that has no sales tax, you can take the state tax deduction for the most savings possible. Even if you do live in a state with sales tax, the other
option may be best depending on how much you paid in state taxes last year.
6. Medical Costs
Medical costs, if high enough, can earn you a hefty tax deduction. This can be a tough peak to summit since the Affordable Healthcare Act dictates that in
order to claim this credit, taxpayers under 65 must accrue medical expenses greater than 10% of their annual income. However, by paying attention to the
details, you might be able to qualify for this deduction.
Bankrate’s Kay Bell suggests tallying up all your miscellaneous medical costs. This might
include “travel expenses to and from medical treatments, insurance premiums you pay for from already-taxed income and even alcohol or drug-abuse
treatments.” These costs combined may push you over the 10% threshold and into tax breaks.
The government sees investing in your education as a valuable asset. You can receive tax deductions by furthering your education in two ways. The first is
by taking advantage of the Lifetime Learning Credit. This tax deduction is available for secondary education students.
the IRS, students using the Lifetime Learning Credit may be eligible to receive up to $2,000 back on their tax return. The benefits begin to phase out when
your income reaches the annual $55,000 to $65,000 range.
The other education deduction available is the American Opportunity Credit, which is similar to the Lifetime Learning Credit but can only be claimed for a
total of four years (including claiming the previous Hope Scholarship Credit).
You may be able to receive up to $2,500 back on your return with this credit. The benefits begin to phase out when your income reaches the annual $80,000
to $90,000 range.
8. Small Business Deductions
Small business owners have a myriad of tax deductions at their fingertips – as long as they know about them.
For starters, you can deduct all kinds of office supplies that relate to your business. Pens, notebooks, sticky notes, and planners can all be written off
as deductions, which can be substantial if you buy thousands of these products annually.
Buying furniture for your office can qualify you for an entirely separate deduction, either by claiming the expense all at once, or on a depreciation scale
split over several years. You can chose which option is best for you with this IRS form.
Other expenses, like software subscriptions (even customer management relations software),
travel expenses, retirement planning, insurance premiums, and phone charges can all be claimed for tax deduction purposes. If you own a small business and
don’t know exactly what to claim on your taxes, make sure you check out all the available options before filing this year.
9. Self-Employment Social Security
Self-employed taxpayers in particular want to take advantage of as many tax deductions as possible since they take on many additional costs and paperwork
themselves. So what can you claim on taxes when you’re self-employed and don’t own a small business that qualifies for tons of tax breaks? Things that
ordinarily your employer would do for you, like handling their half of Social Security.
Self-employed workers have to pay the full 15.3% of their income to Social Security, but they can take tax deductions for the 7.65% that an employer
normally pays. While this may be a small consolation prize for a higher tax rate, it is nevertheless a valuable tax deduction that some people overlook.
10. Reinvested Dividends
Catching a break on your reinvested dividends is simply a matter of keeping track of your funds and reporting them correctly. TurboTax experts put it simply:
“If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your ‘tax basis’
in the fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.” Be sure to check how
this works with your company if you invest in stock options compensation.
This is something you must remember to calculate into your tax basis. Let’s say you
earned $1,000 in dividends from a successful stock and then you reinvested into that same stock: in this hypothetical situation, $1,000 will buy 50
additional shares. Your basis would be $20 ($1,000 divided by 50), in addition to what you paid for the stock in the first place. If you don’t figure
reinvested dividends into your cost basis, you will be over-reporting on your gains, and therefore paying more taxes than you should.
If you are eligible to itemize your deductions, then putting these tips to work could save you a significant amount of money when tax season rolls around.
Know of any other often-overlooked tax deductions? Be sure to tell us about them in the comments below:
Images: Pixabay,Pixabay, Pixabay
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