Everyone dreads the start of tax season. It doesn’t matter what industry you’re working in or how much money you’ve been making – filing your taxes can be a daunting process. That being said, the process is substantially less painful when you’re able to tally up a few big deductions.
When it comes to filing state or federal tax returns, far too many individuals make the grave mistake of assuming they aren’t eligible to claim expenses back. But the truth is, there are loads of forgotten tax deductions that can generate huge savings in the short-term. Play your cards right, and you could even claim your way to a big, fat IRS refund.
To help you get started, below are some of the most common forgotten tax deductions that small business owners forget to take advantage of.
Forgotten Tax Deductions
Sales and Income Tax
The biggest deductions that individuals typically forget to include in their annual returns are states sales tax and income tax. If you live in a state that imposes an income tax, you can claim all the money you’ve paid as a deduction. Likewise, if you live in a state that does not impose an income tax, you can stand to save hundreds of dollars by adding up all the tax you’ve spent on retail items across the year. This applies to both personal and household items.
Medical Expenses
If you’ve paid medical expenses this year, you will definitely be able to deduct some of those costs from your tax return. Eligible deductions will normally include things like hospital visits, prescriptions and elective procedures. That being said, you can only claim these expenses as deductions if they exceed 7.5 percent of your adjusted gross income. It’s also worth noting that you can only claim medical expenses as a deduction if they have not been covered or reimbursed by your insurance provider.
Childcare
One of the most commonly forgotten tax deductions is childcare. If you’re a working parent whose children spend part of the day in care, you are eligible to reclaim those expenses as a tax credit. The easiest way to claim on childcare expenses is the Child and Dependent Care Credit, which can be used for daycare expenses for all children under the age of 12. This credit also applies to summer day camps, so long as you make clear that the child’s enrollment in that camp was specifically to ensure you could get to work.
Tuition Fees
Once your children are a bit older, you can also deduct up to $4,000 per year in qualifying tuition fees. This deduction applies to higher education only, and is applicable to just one dependent. It can, however, also be applied to yourself or a spouse. Please note that if you are married and file separately from your spouse, you will not be able to claim tuition fees as a deduction on your tax returns. This also applies if you are being claimed as a dependent on somebody else’s tax return.
Student Loan Interest
Not only can you claim a deduction for paying tuition fees, but you can also deduct the interest you’ve paid on student loans for yourself, your spouse or your children. Even if you don’t itemize your deductions, you should be able to claim up to $2,500 in qualified student loan interest paid in 2015. This can be made using tax form 1098-E. You may not qualify for this deduction if your adjusted gross income exceeds $80,000 per year. The same caveat applies to married couples filing jointly with a combined income of $160,000 or more.
Charitable Donations
Even the tax man believes in karma – which is why you can claim back most out-of-pocket charitable donations. This is one of the most commonly forgotten tax deductions, because these amounts are usually pretty small. But every penny adds up. If you’ve baked cookies for a fundraiser or donated old clothes, you should be able to deduct it from your return. You can even claim back 14 cents per mile in fuel if you’ve driven a significant distance for a charitable organization.
You’ll be expected to provide confirmation from a non-profit if you’re trying to claim anything over $250.
Job Hunting
If you’ve been out of employment, you can also claim back a lot of the money you’ve spent trying to find a new job. If you’ve been traveling for interviews, you deduct expenses tallying up to two percent of your adjusted gross income. This rule applies only if you are searching for a job within your current field, and you have already held a job in a similar post.
If you’re on the hunt for something in a new industry or are a first-time job seeker, however, you will be free to claim moving expenses once you land your dream job. You can deduct the cost of moving your belongings, travel expenses and parking and toll fees, so long as that you’re moving at least 50 miles away from your former residence.
Mortgage Interest
Homeowners can also benefit from a range of savings opportunities. If you obtained a mortgage insurance policy after 2007, you will most likely be eligible to deduct the amount you’ve paid toward your insurance premium. Likewise, you’ll also be able to claim the interest paid on your mortgage points. For those who have refinanced, it’s possible to distribute these interest points over the life of your new mortgage, too.
Remodeling Your Home
Another forgotten tax deduction individuals often overlook is money spent on home renovations. If you’ve remodeled your existing home, you should be able to deduct the sales tax you’ve already paid for building materials. That being said, you can claim more depending upon the rationale for your home improvements. For example, renovations made in order to accommodate health issues can be deducted as medical expenses.
Energy-saving Measures
The IRS is also willing to reward you for improving the energy-efficiency of your home. You can claim a deduction of 10 percent on costs up to $500. Better yet, you can claim up to 30 percent off select costs through 2016 thanks to the recently updated Residential Energy Efficient Property Credit. This credit covers things like installation for domestic wind turbines, solar heaters and geothermal heat pumps.
Military Travel
If you’re a member of the US military, you can claim part of your travel expenses for attending drills or meetings located more than 100 miles from your current residence. This also applies to reservists. Under this deduction, individuals can write off all money spent on lodging and half of all meal expenses. In this instance, the typical two percent adjusted gross income rule does not apply.
Gambling Losses
Believe it or not, the taxman can also be quite forgiving when it comes to gambling. If you’re a keen poker player, you must report and pay taxes on all winnings you’ve brought in. That being said, unlucky individuals might be able to recoup some of their losses by claiming back on their tax returns. By claiming gambling losses as a miscellaneous deduction, you are permitted to deduct losses up to the amount of income you have reported.
Bear in mind that this list of common forgotten tax deductions is by no means exhaustive. There are loads of savings opportunities you could be capitalizing upon in order to reduce your tax bill. It doesn’t matter what you do or how much you’re making – you’re going to be eligible for something. It just takes a bit of digging.
Just remember: you’ve got to do your research, get creative and always seek professional advice when in doubt.
[“source-smallbiztrends”]
