Saturday, January 11, 2014

List of 15 Commonly Overlooked Personal Tax Deductions for Individuals

Laura Williams for writes: The only thing worse than paying taxes is inadvertently paying more than you have to. You can avoid this by taking advantage of the common and commonly overlooked deductions. It’s best to be aware of these all year long, so you can maximize your deductions and maintain good records.
Even if the tax filing deadline is rapidly approaching, it still pays to know which deductions you could be eligible for so you can dig up old receipts to claim them. See if you can reduce your taxes or increase your refund by claiming any of the following.

Overlooked Tax Deductions

1. Tax Preparation FeesSchedule A, Line 22
You can actually deduct the cost of tax preparation on your Schedule A. If you paid taxes and used a credit or debit card to do so, you can also deduct convenience fees. This deduction doesn’t apply if you used a free online tax preparation software or service, but you can write off paid services, such as TurboTaxH&R Block, or TaxACT. Just keep in mind this only applies to fees you paid in the year you’re deducting them. For instance, when filing taxes for 2013, you can only deduct fees paid in 2013 for your 2012 tax return.
2. Hobby ExpensesSchedule A, Line 28
Hobby expenses can be claimed as “other miscellaneous deductions.” While your hobby may not actually qualify you for small business tax deductions, you can deduct some of its expenses. However, you can only deduct as much as you generated in income from your hobby For instance, if your homegrown orchids netted you $300, but cost you $1,000, you can only deduct $300 in expenses. This helps recoup some money if you have a small business that has gone three years without a profit – at which point the IRS categorizes your operation as a hobby.
3. Personal Legal BillsSchedule A, Line 28
Personal legal bills also fall into the “other miscellaneous deductions” category. You can deduct your legal fees as long as the lawyer is pursuing taxable income on your behalf, or is working on a determination, collection, or refund of any tax. For example, if you’re going through a divorce and pay $1,000 to a lawyer who is working to secure alimony for you, you may deduct the $1,000. However, hiring a lawyer to gain custody of a child is not deductible.
You may also deduct legal expenses incurred while doing or working to keep your job. For instance, if you’re in a legal dispute with your company over unlawful termination, you could deduct the expenses as long as you’ve paid the fees you’re deducting and you’re deducting them in the year you paid them.
Legal deductions are limited to two percent of your Adjusted Gross Income (AGI). For instance, if your adjusted gross income is $40,000, your deduction would be limited to $800 – two percent of $40,000.
4. Educator ExpensesForm 1040, Line 23
If you worked as an eligible educator in a K-12 school as a teacher, aide, counselor, or administrator, and you personally purchased ordinary and necessary back-to-school supplies for the classroom, you can deduct up to $250 worth of these expenses on your 1040 form. If you spent more than $250, you can deduct the remainder on Schedule A.
If you’re married and filing jointly, and your spouse is also an eligible educator, you can deduct up to $500 total in educator expenses, but neither you nor your spouse may deduct more than your individual $250 limit.
5. Charitable MileageSchedule A, Line 16
While it’s widely known that cash or goods donated to charities are tax-deductible, you may not realize that mileage driven as a volunteer is also deductible. If you drive to your volunteer location or run any errands while volunteering, keep a log of your miles. You can deduct 14 cents per mile plus parking and toll fees.  You can also deduct the fees you pay to use public transportation to go to and from the volunteer location.
6. Contributions to Fraternal Lodge SocietiesSchedule A, Line 16
These are also considered charitable donations – to a point. Dues that are specifically required of members are not deductible, but donations in excess of the required amount which are used for qualified charitable purposes (such as the Shriners hospital funds, or donating to local charities) are considered charitable donations. You can claim an amount up to a maximum of 30% of your adjusted gross income (AGI).
7. Losses Due to Theft or DestructionSchedule A, line 20
If your car was hit by hailstones or you lost siding in a natural disaster, you can deduct the amount of the loss that you weren’t reimbursed by your car or homeowners’ insurance company. You must complete Form 4684 to determine the amount you can deduct.
8. Retirement Savings Contribution CreditForm 1040, Line 50
If you contributed to your 401k, another retirement plan through work, or a traditional or Roth IRA, you may be eligible for the saver’s credit. The maximum credit for individual filers is $1,000 if you contribute at least $2,000 to a qualified retirement account. Those who are married filing jointly may receive up to $2,000 in credit.
However, you must meet the income requirement for your filing status in order to qualify, and the lower your income, the greater the credit you can receive – an amount ranging from 10% to 50%. For 2013, the income limits are $29,500, $44,250, and $59,000 if you file as single, head of household, or married filing jointly, respectively. Use Form 8880 to determine your total credit and credit rate.
9. Education CreditsForm 1040, Line 49
Did you take a knitting class or pick up sign language or another life skill at your local community college this year? What about the continuing education classes you took for your job? Any expenses incurred may qualify for the Lifetime Learning Credit, which can net you up to $2,000 in tax credits. You can get this credit for classes taken by your spouse or any dependent as well, as long as you aren’t part of an employer tuition reimbursement program. The more well-known American Opportunity credit allows you to deduct up to $2,500 in expenses for undergraduate students, including you or your spouse. It is also a refundable credit – unlike the Lifetime Learning credit. In other words, you can get a portion of it refunded to you, even if you have no tax liability. If you claim either credit, you cannot also claim the tuition and fees deduction on your 1040.
10. Property Taxes on a TimeshareSchedule A, Line 6
Frequently, your portion of the property taxes paid on a timeshare are included in your yearly maintenance fee. Check the statement to see if they are separated out. Additionally, if you sold a home or timeshare this year, any property taxes you already paid should be on your settlement statement and can be deducted as well.
11. Last Year’s State Income TaxesSchedule A, Line 5a
If you owed any state tax from 2012 and paid it in 2013, be sure to deduct it on your Schedule A, as it’s now a deduction for 2013.
You may also elect to deduct state and local sales taxes instead of state income taxes. These are entered on Schedule A, Line 5b. You may use your actual expenses, or the state and local sales tax tables located in the Instructions for Schedule A to determine your deduction. Your deduction is based on the state where you live, your AGI plus any nontaxable items, and the number of exemptions claimed on your tax form.
12. Penalty on Early Withdrawal of SavingsForm 1040, Line 30
Did you cash in a certificate of deposit early this year? If you were charged a fee for doing so, you can deduct the penalty on your 1040 as part of your AGI.
13. Medicare B and D PremiumsSchedule A, Line 1
Medicare B and D premiums (which you sign up for voluntarily) can be deducted as a medical expense. Also, if you aren’t eligible for Social Security and you voluntarily enroll in Medicare A, you can deduct your Medicare A premiums.
Beginning January 1, 2013, you can only deduct the part of your medical or dental expenses that exceeds 10% of your AGI.
14. Breastfeeding Equipment and PumpsSchedule A, Line 1
An IRS ruling has declared breast pumps and other breastfeeding equipment to be medical equipment, which means its cost can be deducted on Schedule A. Since these pumps are often expensive, adding their cost to your other medical expenses can help you achieve the required total before deductions are meted out (10% of AGI).
15. Financial Planning and Management ExpensesSchedule A, Line 23
If you subscribed to an investment newsletter, paid a financial advisor to review your retirement plan, had an attorney prepare a living will or trust, or otherwise spent money to manage your money, you can deduct these expenses.


Post a Comment