10 Overlooked Tax Deductions That Will Save You Money

in Financial Planning by

KEY POINTS
  • Don’t rush, and take your time during the tax filing process.
  • Get a second opinion from your financial advisor.
  • Take every deduction you can.

If you’re like most Americans, you’d prefer to pay less in taxes each year. But, in the rush to get our taxes done, it’s easy to skip taking a second look at your tax return before hitting “Send.” To help you save your hard-earned money, here are 10 commonly overlooked ways to save money at tax time.

1. State Sales Tax

Most people who itemize deductions know that they can deduct state income taxes paid. Actually, you can choose to deduct either the state income tax you paid or the state sales tax you paid. The IRS even helps you calculate the state sales tax using its Sales Tax Deduction Calculator. This deduction is particularly important for people living in a state in which there is no state income tax. But, even if you live in a state with an income tax, if you had a large purchase such as a vehicle or a boat, you may want to check this calculation and see which benefits you most.

2. Foreign Tax Credits

You can also deduct or take a credit (even better) for foreign taxes paid on foreign income. Don’t assume that you don’t have any foreign income or any foreign taxes paid! Before you dismiss this credit, make sure that you check the 1099 forms you received from any mutual funds you own or investment firms in which you hold mutual funds. Many mutual funds have stocks from foreign and/or multi-national companies in their portfolios that may be paying you foreign dividends or capital gains. The mutual fund may also be deducting foreign taxes on your share of these dividends and/or capital gains. You might be surprised to see the amount of foreign taxes you are actually paying.

3. Tuition And Education Expenses

If you or your dependent(s) are working toward a college degree, you can receive an annual tax credit of up to $2,500 per eligible student for the first four years of higher education through the American Opportunity Tax Credit. But, even if you are simply taking a class or two to improve job skills, you may qualify for a credit of up to $2,000 per tax return through the Lifetime Learning Credit. And, there is no limit on the number of years you can claim the Lifetime Learning Credit. But, there’s no double dipping – you can only choose one type of education tax credit per year. These credits phase out based on your level of income – check IRS Publication 970 for further details.

4. Student-Loan Interest Paid By Parents

If parents pay back a child’s student loans, the IRS treats this as if the parent(s) gave the money directly to the child, who then used it to pay the loan debt. As long as the child is no longer able to be claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest, even if some or all of it was paid by mom and/or dad. And, the child doesn’t need to itemize to take advantage of this deduction.

5. Child Care Credit

Most taxpayers know that you can qualify for a tax credit (much better than a deduction) for 20%-35% of what you pay for childcare while you (and your spouse, if filing jointly) work. The maximum benefit is up to $6,000 for two or more children. Many employers offer a child care reimbursement account, enabling the employee to pay for childcare with pre-tax dollars (even better yet). However, those plans are capped at $5,000. If you are paying for child care with pre-tax dollars and exceed the $5,000 cap, you can still claim the credit using up to $1,000 of additional expenses.

6. Job-Hunting Expenses

If you were looking for a job this year that was in the same line of work as your current or most recent job, you can deduct expenses incurred in your job search as a miscellaneous expense, provided you itemize deductions. Qualifying expenses include such items as the cost to print resumes, postage fees, transportation expenses (mileage @ 56 cents per mile, parking, tolls, cab fares, etc.), food and lodging (if your job search took you away from home overnight), employment agency fees, etc. And, you don’t need to be successful in finding a job to deduct these expenses. However, these expenses are not deductible while looking for your first job.

7. Moving Expenses For A New Job Or Job Location

If you moved your residence because you got a new job, or had to report to a new job location, and your new job or location is at least 50 miles further from your residence than your prior job location, you can deduct reasonable moving expenses. This could include travel expenses, moving household goods and personal effects, storage costs, etc. For complete details, check IRS Publication 521. Unlike job-hunting expenses, qualified expenses for a move required for a first-time job can be deducted. And, you don’t need to itemize to benefit from these deductions.

8. Non-Cash Charitable Contributions

Most taxpayers know that cash donations to approved charities are deductible if you itemize deductions. However, non-cash donations, such as clothing and/or household goods, are deductible at fair market value. Organizations like The Salvation Army can help you determine the value of your donations. Also, expenses you incur on behalf of a charitable organization are deductible as well. For example, if you purchase supplies like stamps or food for a charitable group, that purchase is deductible. Or, if you incur travel expenses to volunteer at the local soup kitchen, or if you deliver meals on wheels in your car, you can deduct 14 cents per mile driven. You can’t deduct the value of your time spent volunteering, but don’t overlook out-of-pocket expenses. While individual expenses may be small, they can add up. Just make sure you keep a record, along with any associated receipts.

9. Military Reserve Travel Expenses

If you are a member of the Military Reserve or National Guard, you can deduct expenses associated with travel to training exercises or meetings (provided the travel is more than 100 miles from home and requires an overnight stay). You can also deduct the cost of air or train tickets, lodging, and half the cost of meals. If you drive your own car to get to and from drills, you can deduct 56 cents per mile driven, along with any tolls or parking expenses. This is another deduction you can get even if you don’t itemize deductions.

10. Baggage Fees

U.S. air carriers are taking in over $3 billion in baggage fees per year. If you are traveling for business and deducting your airline ticket as part of your travel expenses, don’t forget to deduct any baggage fees that you are charged. These fees can be deducted just like other travel expenses.

As you sit down to file your taxes this year, don’t forget to take these 10 deductions into account. Happy filing!

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Gene Salo is Senior Director at TaxSimple, an online do-it-yourself tax preparation program designed to make filing your personal income taxes easy and convenient.

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Gene Salo

Gene Salo

Gene “Geno” Salo has worked in the tax industry across a variety of roles for over 20 years. His current position is Senior Director over Tax Simple, an online do-it-yourself tax preparation program designed to make filing your personal income taxes easy and convenient. Geno also serves on the Board of Directors for CERCA (Council for Electronic Revenue Communication Advancement) and is a member of the Free File Alliance, a partnership between the software industry and the IRS to provide free tax return preparation options to consumers. Geno has an MBA from the University of Michigan and is a veteran of the US Air Force. Geno contributes blog articles for Tax Simple customers, and also delivers specialized content direct to tax professionals and CPAs.
Gene Salo

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6 comments

  1. Howard

    Who the heck thinks these deductions are overlooked??? Mr. Salo, your credibility just went down to zero.

    Reply
    • Crystal

      This is untrue; Mr. Salo did an excellent job. I didn’t know about some of these deductions and for those who don’t itemize (1040EZ, etc.) or are transitioning to itemized deductions, these are golden nuggets of advice.

      Reply
  2. Will

    I understand why someone can’t put a price on their volunteer time, if you could people would definitely value their hourly time at unrealistic rates. However, a few times this tax season I have seen people get the short end of the stick with respect to this rule . For example I was speaking with a marketing professional that designed posters and other types of advertisement for several NFPs to the tune of around $3,000 that Unfortunately was not able to deduct any of the services the NFP would have otherwise had to pay for. I don’t think the NFPs realize they shot her in the foot when they valued her services at an hourly rate, something NFP directors should take note of.

    Reply
    • Bill

      How was she shot in the foot? She took no deduction against the no income received, and hopefully got some promotional value (or at least references/portfolio content) out of the deal.

      Reply
  3. Charles

    The baggage fees and job hunt expenses are two I missed in 2014. Thanks.

    Reply
  4. Tyler Meredith

    It’s interesting that moving can provide some tax deductions. I’ve had a lot happen in the past year, and I want to make sure my taxes are filed correctly. I’ll have to look into having professional help as I think it’d be the best way of filing. Thanks for sharing!

    Reply

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