Personal Capital Tax Series – 6: Deductions & Credits to Save Money at Tax Time

in Financial Planning by

From April to June last year, airline baggage fees added up to more than $1 billion for U.S. airlines. What exactly does that have to do with your taxes? Well, if you travel for work and can deduct your airline ticket, you can also deduct those baggage fees.

Every dollar counts when it comes to taxes. Even though many IRS deductions and credits are relatively small amounts individually, they can add up to substantial savings for those taxpayers who diligently track their costs and understand deductions and credits.

[Use our free tools to easily track all your personal finances]

Here are a few more IRS deductions and credits that are often overlooked:

  • State sales tax: Did you know you can choose to deduct either state income tax or state sales tax. That’s important if you live in a state that doesn’t have a state income tax. It’s also important if you make a large purchase, such as a car, boat or recreational vehicle, and you usually just deduct your state income tax. For that one year, you might want to deduct your state sales tax, instead. Just do the math and pick the most favorable result.
  • Foreign tax credits: Don’t skip this one, especially not if you own mutual funds. Your 1099 forms might reveal that you are paying more foreign taxes than you imagined—particularly if you imagined that you were paying none.
  • Child care credit: Even if you pay for childcare with pre-tax dollars, you may be able to claim a credit for some childcare costs exceeding the $5,000 maximum for your pre-tax plan.
  • Job-hunting costs: If you are looking for a job in your same line of work, track your expenses. If you itemize, you can deduct all sorts of expenses, such as printing costs for resumes, postage, food, lodging for out-of-town searches, and many more associated costs. They will need to be over 2% of your AGI to be able to deduct them.
  • Moving expenses for a new job or job location: Did you move more than 50 miles away to take a new job? You can cut your tax bill by deducting reasonable moving expenses. And, you don’t need to itemize to benefit from these deductions.
  • Military reserve travel expenses: If you are a member of the military reserve or National Guard, you can deduct several expenses associated with your commitment. This is another deduction you can take even if you don’t itemize deductions.

There’s lots more to know about each of these tax deductions and credits, as well as how taxes impact all aspects of your life, from retirement to education savings. Download our free “Tax Guide for Holistic Financial Planning” for more details.

This blog is for informational purposes only; we are not in the business of providing tax or legal advice and we generally recommend seeking the advice and counsel of a tax professional before taking any action that may cause a material taxable event.

Next Up: The Capital Gains Tax

The following two tabs change content below.
Amin Dabit, CFP®

Amin Dabit, CFP®

Amin Dabit is the Director of Advisor Services with Personal Capital. Along with the EVP of Advisory, Amin helps lead Personal Capital’s financial planning experience and advice. Amin brings over a dozen years of experience in private wealth management and financial planning. Amin works with the advisory team to identify and establish strategies for reaching clients' financial goals by providing comprehensive, customized financial advice designed to improve their financial lives.
Amin Dabit, CFP®

Latest posts by Amin Dabit, CFP® (see all)


One Response

  1. Saeed

    Very informational blog post. At least I get summarize information and consult with business and financial advisor.

    Reply

Leave a Reply

Your email address will not be published.

Disclaimer. This Website may contain links to third-party websites. These links are provided solely as a convenience to you and does not imply an affiliation, sponsorship, endorsement, approval, investigation, verification, or monitoring by PCAC of the contents on such third-party websites. Please be advised that PCAC is not responsible for the content of any website owned by a third party.