Tax season is officially here as the Internal Revenue Service is now accepting and processing 2014 tax returns. Considering there will be approximately 150 million individual returns filed this year, Americans should double-check their forms and make sure common deductions are not missed.
The timeless saying, “It’s not how much you make, it’s how much you keep,” is best applied at tax time. Americans will spend more on taxes than they do on food, clothing, and housing combined, according to the Tax Foundation. In fact, employees will work about an average of 27 days to pay their payroll taxes, 13 days for sales and excise taxes, 11 days for property taxes, and 7 days to pay other taxes such as estate taxes. Since corporations often pass expenses to consumers, the foundation estimates that Americans will work 9 days to pay their share of corporate income taxes.
In total, Americans will claim over $1 trillion worth of deductions and receive refunds in the neighborhood of $300 billion, but some valuable tax benefits are still missed. Let’s take a look at the most overlooked tax deductions, with the help of TurboTax and the tax code.
State Sales Taxes
According to TurboTax, this write-off mostly applies to people who live in states that do not collect an income tax. Taxpayers are faced with the decision of deducting state and local income taxes, or state and local sales taxes. The income tax deduction is typically the better deal for taxpayers in income-tax states.
Most people are well-aware of charitable deductions, but taxpayers can also deduct 14 cents per mile if you drove your car to the charity to make your contribution. This deduction will also be in effect for 2015. Those using their car for work purposes can deduct 56 cents per mile driven in 2014, and 57.5 cents per mile in 2015. However, it is highly recommended that you maintain a mileage log and keep personal and business driving separate.
If you moved due to a change in your job or business location, or because you started a new job or business, you may be able to deduct your reasonable moving expenses but not any expenses for meals.
The IRS explains: “Your move must closely relate both in time and in place to the start of work at your new location. You can consider moving expenses incurred within one year from the date you first reported to work at the new location as closely related in time to the start of work. A move generally relates closely in place if the distance from your new home to the new job location is not more than the distance from your former home to the new job location.”
Taxpayers who changed jobs (but not occupations) or went job hunting may be able to deduct the costs of preparing and mailing your resume, travel expenses, and any fees paid to outplacement agencies. With the recent push towards social media, taxpayers should not forget about job-related expenses paid to companies like LinkedIn. These deductions can not be taken for your first job, or if you tried to change careers.
Student loans are becoming more common, along with the struggles of paying them back. If the parents paid the child’s student loan, the IRS treats it as if the parents gave the money directly to the child, who then paid the debt. A child not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad. This deduction is subject to a phaseout, which means the amount of the deduction gradually decreases and eventually phases out completely.
You can claim the deduction if all of the following apply:
- You paid interest on a qualified student loan in tax year 2014
- You are legally obligated to pay interest on a qualified student loan
- Your filing status is not married filing separately
- Your modified adjusted gross income is less than a specified amount which is set annually, and
- You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return
With interest rates being pushed down to historic lows, many taxpayers are refinancing their homes, which may also bring a tax deduction. TurboTax explains, “When you buy a house, you get to deduct points paid to obtain your mortgage all at one time. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Doesn’t seem like much, but why throw it away? Also, in the year you pay off the loan—because you sell the house or refinance again—you get to deduct all the points not yet deducted, unless you refinance with the same lender.”
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