Tax season is in full-swing and we want to be sure you’re getting all the tax breaks you deserve. Every year millions of taxpayers overlook many money-saving deductions. Be sure not to miss the 5 often-overlooked tax deductions courtesy of Kevin McCormally of Kiplinger.com and Tara-Nicholle Nelson of Trulia.
1. State and local tax breaks for ‘green’ home improvements
As the recession recovery made its way into full swing in 2013, many homeowners started down a path of improving their home’s energy efficiency for a variety of reasons, including cash savings on their utility bills. Many of those improvements are eligible for state, county and/or city tax credits or tax breaks. If you installed dual-paned windows, insulation, low-flow plumbing appliances, tankless water heaters or solar panels in 2013, dig up your receipts and talk with your tax preparer or visit your state, county and city government websites to research tax advantages you might already be eligible for.
2. Mortgage-interest tax break
Many homebuyers expressly call out the mortgage-interest tax deduction as a major motivation behind their desire to own a home. Proof: In a survey conducted by the California Association of Realtors, 79 percent of people who bought a home in 2012 said the mortgage-interest and property-tax deductions were “extremely important” to their decision to buy. However, it’s shocking the amount of homeowners who still don’t take the mortgage interest deduction every year.
According to the American Institute for Economics Research, only about 63 percent of homeowners itemize deductions – a prerequisite to taking the mortgage-interest deduction and its cousin, the property-tax deduction.
There are many reasons why homeowners don’t take advantage of this tax break – one being their income tax liability is simply so low that itemizing their tax deduction doesn’t pencil. That just means that some people’s holistic financial picture, including the income they earn and the mortgage interest they deduct, renders the standard deduction larger than the tax break they would receive by virtue of the mortgage interest and other itemized deductions. However, many homeowners who could be eligible for great benefits from itemizing don’t fully appreciate or simply don’t feel up to the task of determining whether they have sufficient nonmortgage-related deductions to itemize, so they do their own taxes and just take the standard interest deduction to minimize the work.
3. Out-of-pocket charitable contributions
It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub). But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for a school’s fund-raising mailing count as charitable contributions. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity in 2013, remember to deduct 14 cents per mile, plus parking and tolls paid, in your philanthropic journeys.
If you have a high mortgage or property-tax bill, it might be obvious that itemizing makes sense. But if not, you owe it to yourself – and your bank account – to at least try working with a tax preparer or committing to spend the time and energy it takes to explore the question of whether itemizing makes sense.
4. Child-care credit
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax. In the 25% bracket, each dollar of deductions is worth a quarter; each dollar of credits is worth a greenback.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account—which allows you to pay for the child care with pretax dollars—that’s likely to be an even better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only amounts paid for the care of children younger than age 13 count.) You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax-favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
5. Job-hunting costs
If you’re among the millions of unemployed Americans who were looking for a job in 2013, we hope you kept track of your job-search expenses … or can reconstruct them. If you’re looking for a position in the same line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn’t land a new job. But such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. Job-hunting expenses incurred while looking for your first job don’t qualify. Deductible job-search costs include, but aren’t limited to:
— Transportation expenses incurred as part of the job search, including 56.5 cents a mile for driving your own car plus parking and tolls
— Food and lodging expenses if your search takes you away from home overnight
— Cab fares
— Employment agency fees
— Costs of printing resumes, business cards, postage, and advertising.
Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don’t itemize.
To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car on a 2013 move, deduct 24 cents a mile, plus what you paid for parking and tolls. For a full list of deductible expenses, check out IRS Publication 521.