Some Tax Deductions You May Need
As we all know, the normal deadline for filling your taxes
is April 15(U.S. Government, 2013). If you have not filed your taxes yet, you
should take advantage of one important thing about taxes: deductions. According
to the available published evidence, Americans claim more than $1 trillion deductions at tax time(Feldman, 2013). So you
might as well get a piece of that pie
while it is on the table, regardless of your opinion with respect to the
U.S. tax code – that is, whether you
think the U.S. tax code should have more write-offs or fewer loopholes. Below is a
helpful starter list that would help you to grab every available deductions(including the ones
you may not have thought about) in your 2012
returns.
Taxes on New Cars
There has been a revival of the state sales tax write-off.
This revival means that you are now allowed
to choose between deducting state
income taxes or state sales taxes. If you always itemize your deductions
and live in Florida or other states without an
income tax, this would be a no-brainer for you. But if you live in high-tax
states like California or New York, this option won’t make any sense to
you(Feldman, 2013). You will need to check out the IRS online calculator for more guidance on how to take advantage of
this option.
Donations
Keep track of all your donations: monies you sent to favorite causes, foods you bought for homeless shelters, pens you donated to
after-school programs, and so on. You
should remember one more thing: you can use software like ItsDeductible from
Intuit(the publisher of TurboTax), or the H& R Block’s Deductions Pro to
come out with the right value of the donations, say, the clothes you sent to Hurricane Sandy victims in 2012. In
addition, if you drove your car for charity in 2012, you are allowed to
deduct that too at a current rate of 14
cents per mile(Feldman, 2013).
Student Loans
Here’s an overly simplified
explanation of how this one
works: you can write off up to $2,500 a year in student loan
interests. Also, though there are income
limitations, you are allowed to claim
it even if you don’t itemize your
deductions. Furthermore, if you paid extra
amount to pay down your student loan faster, you are equally
allowed to deduct the interest
portions of those involuntary payments
too.
Medical Costs
Good news: the Internal Revenue Service has a much more broader and lenient description of what constitutes medical costs than your health insurer
probably does. In view of this, most medical expenses are often deductible: weight loss programs, acupuncture treatments,
eye glasses, dental care, breast pumps
and their accessories. Even the travel expenses you incurred to see your doctor
is tax deductible(at 23 cents per mile, whether in your car or by a taxi). If
you want to see a complete list of the medical expenses that are tax
deductible, get a copy of the IRS’s
Publication 502(Feldman, 2013).
There’s a catch though: You can only deduct the amount of
medical expenses that tops 7.5 percent
of your adjusted gross income(Feldman, 2013).
Parent’s Care
If you have kids, you probably is aware of one tax fact: you
can count your kids as dependents(this
exemption is worth $3,800) and take the child tax credit($1000 per dependent
child under the age of 17). But have you
considered your aging parents (or other relatives) as dependents? You may not
realize that but they also count as dependents. However, the rules are tighter
in this case: The IRS requires that, to qualify, your parents must make less than $3800(excluding Social
Security income), and you must pay more than half of their bills.
Job-Hunting Costs
Be informed that you can deduct the cost of job hunting: the
costs of preparing your resume, travelling to interviews, and outplacement
fees. You can also write-off the cost of moving if you take a job at least 50
miles away. Note, however, that job-hunting costs gets lumped into
miscellaneous deductions which you can only take when it is above 12 per cent
of your adjusted gross income.
Investment Advice
If you invested in stocks, mutual funds, annuity and other
financial products, take heart: you can deduct fees paid to financial advisers.
You can also deduct the costs of travelling to meet with your financial guru in
person as well as the costs of subscriptions for financial publications. The
rules are also tight here: you cannot deduct expenses for going to investment
seminars and hear get-rich-quick schemes. Sorry about that.
Home Businesses
If you own a home business, you should start to keep
track of your expenses because you can
grab bag of deductions: your home office expenses(including the pro-rated electric bill, homeowner’s
insurance and cleaning costs for your home office), health insurance as well as
any subscription, books, and conferences which serve to keep your business financially afloat. Don’t forget to write of
the costs of the following immediately: the costs of a new laptop, setting up a
new phone system, or the cost of purchasing a big-ticket piece of equipment for
your business. It is better to write these costs off immediately rather than
depreciating them over time – a different approach that can be extremely
valuable even though they may sound ridiculously geeky.
Sources
Feldman A. (2013): 10 Tax Deductions to Keep on Your Radar.
Baltimore Sun(Business & Jobs Section), p.4.
U.S. Government(2013): Federal
Tax Filling Season. Retrieved April 8, 2013 from http://answers.usa.gov/system/selfservice.controller?CONFIGURATION=1000&PARTITION_ID=1&CMD=VIEW_ARTICLE&ARTICLE_ID=10401
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