How to Maximize Your Tax Deductions This Year
Every possible tax deduction can help when your money is tight. Yet many available legal deductions go unclaimed each year simply because most taxpayers still don’t know the breaks exist. From eyeglasses to airline baggage fees, you might qualify for at least one often-forgotten deduction – and maybe more than one.
The Internal Revenue Service (IRS) allows you to take the cost of certain items, known as itemized deductions, off your tax bill if you qualify. You should itemize deductions if they add up to more than your standard deduction, the IRS advises.
Itemizing also makes sense if you can’t use the standard deduction. Did you have large uninsured medical and dental expenses, or casualty or theft losses? Or pay interest or taxes on your home? Or have large unreimbursed employee business expenses? Or make large charitable contributions?
For filing your taxes, you itemize deductions on IRS Schedule A. If you itemize, don’t overlook these categories:
Job-hunting. Did you spend out-of-pocket to travel to interviews, or shell out for stationery for resumes and cover letters? Deducting these items can make a big dent at tax time.
You don’t have to be officially unemployed, either. Expenses that you incur searching for a better job, even while fully employed, qualify. Other applicable deductions include food and lodging for overnight stays, cab fares, and fees you pay to employment agencies.
Moving. If that new job is your first job, you may be able to deduct incurred moving expenses. To qualify, your first job must be 50 or more miles from your previous job or residence, and you must work full-time for about 39 of the first 52 weeks in your new location.
If you qualify to deduct the cost of moving and if you drove your own vehicle for the move, deduct 23.5 cents a mile plus parking and tolls. If you kept excellent records and receipts, you can instead deduct actual driving expenses such as gas and oil.
To calculate this deduction, use IRS Form 3903.
Medical items. You probably realize that you can deduct necessary medical items like wheelchairs and hearing aids. Guess what? While designer eyeglasses, contact lenses or magnifying devices from your local drug store may not seem like medical devices, the IRS does allow these deductions.
Giving to charity. Qualifying donations constitute one of the most common ways that Americans gain tax deductions. Many other acts of charity also qualify.
You can deduct such out-of-pocket expenses as the cost of paint and poster board for a school fundraiser, for example, or the cost of delivering meals or chauffeuring other volunteers. Mileage deductions are at a rate of 14 cents per mile plus parking and toll fees.
Generally, deductions of more than $250 for individual donations require a written acknowledgement from the charity.
Military service. Members of the National Guard or military reserve may deduct travel expenses for attending drills or meetings; you must travel more than 100 miles from home on an overnight trip. Applicable deductions include lodging, meals, and 56 cents per mile plus parking and toll fees.
Jury duty. Your employer may be one of the many that pays employees during jury duty but requires employees to turn over jury pay later as recompense. To even things out, you can deduct the amount you give to your employer.
In such cases, the write-off goes on line 36 of your IRS Form 1040, the line totaling up deductions. Add your jury fee total to your other write-offs and write “jury pay” directly to the left.
Baggage fees. The American traveling public rarely recognizes these fees, which can add up quickly. If self-employed and traveling on business, you can tag on those costs as legitimate deductions.
Home energy conservation. Many tax credits for energy-saving home improvements expired, but the most valuable credits still exist until 2016. These can effectively refund 30% of the cost of alternative energy upgrades such as solar hot water heaters and geothermal heat pumps.
Loan interest. In most cases, you can only deduct mortgage or student-loan interest if you’re legally required to repay the debt. If you’re a non-dependent student who still receives help from mom and dad, your parents’ generosity may help at tax time in a different way.
If mom and dad pay your loans, the IRS treats the money as a gift to you, the child, who in turn used the money to pay the debt. A non-dependent child can qualify to deduct up to $2,500 of student-loan interest paid. Note: Mom and dad cannot claim the interest deduction.
To get the most out of your tax deductions, stay organized and do your research. No one likes getting audited – though if the IRS does red flag you, some costs of professional advice to defend yourself are, in fact, deductible.
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Kimberly J. Howard, CFP, CRPC, ADPA, is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, Mass. and Denver (781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at email@example.com. Follow on Twitter at @kimhowardcfp.
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