Minimize your taxes through often overlooked deductions
Reports show that nearly a billion dollars is overpaid each year by taxpayers who don’t take advantage of all the credits, deductions, and income adjustments they’re entitled to, according to the ADA Center for Professional Success. Here are the top ten most common deductions that tax filers often overlook. Be sure to check with your accountant to make sure they apply to your particular circumstances.
- State Sales Tax – Taxpayers can deduct either state income tax or state sales tax off their total income. The ability to deduct sales tax is fairly new, so not everyone does it. But if you’re lucky enough to live in one of the few states without an income tax, it’s a great deduction to take—if you’ve kept your purchase receipts.
- Out-of-pocket Charitable Expenses – Not everyone realizes that out-of-pocket costs incurred while doing work for a charity also count. Travel, lodging, meals, ingredients for a bake sale all count as they relate to volunteer work.
- Student Loan Interest – Paid by Mom and Dad In the past, a student could only deduct loan interest if they were both liable for the loan and the one paying it off. Now, as long as they’re not being claimed as a dependent, a student can deduct the interest on a loan—even if their parents are the one paying the bill.
- Moving Expenses for Your First Job – Most taxpayers know that moving expenses related to relocating for a new job are deductible. However, recent college graduates that move more than 50 miles from home are eligible to write off their moving costs, too.
- Job-Hunting Costs – Costs associated with looking for a new job include resume preparation, employment agencies, air travel, taxis, printing costs, etc. are deductible, even if you didn’t land the job. However, this only applies if your total miscellaneous itemized expenses exceed 2% of adjusted gross income.
- Summer Child Care Expenses – A lesser known fact is that parents can claim the credit for child-care expenses incurred over the summer (this includes camp expenses—as long as it’s a day camp that keeps the kids busy while the parents are at work).
- Mortgage Refinancing Points – When you purchase a home, you may deduct the total points paid to obtain your mortgage all at once. When you refinance, you can deduct the points as well—with a twist. Refinancing points must be deducted over the life of the loan (for example, with a 30-year loan, you could deduct 1/30th each year). However, when you sell or pay off the loan, you’re allowed to deduct all of the points not yet deducted (unless you refinance with the same lender).
- The Lifetime Learning Credit – Available to anyone taking college classes (whether towards a degree or not), the Lifetime Learning Credit is good for a 20% credit off tuition expenses, with a maximum of $2,000 on the first $10,000. You can claim the credit on your tax return if you, your spouse or your dependents are enrolled at an eligible institution and you were responsible for paying college expenses.
- Child Care Credit – Working people used to be limited to a $5,000 childcare credit through their employer-based reimbursement account. Now, up to $6,000 can qualify for the credit (although the $5,000 still applies to reimbursement accounts).
- Lost Deduction from Prior Years – Just because you didn’t take advantage of a deduction last year doesn’t mean all is lost. Many deductions can be carried over to later years if they’re not used in the year they occur. You’ll need to speak with your tax preparer for details, but some examples of holdover deductions include business loses, and charitable contributions.
This list of credits and deductions available to tax payers, a little research, and the help of a skilled tax preparer can go a long way towards reducing your tax burden and saving you more of the money you’ve earned.
This material is for general reference purposes only and does not constitute legal or financial advice from the American Dental Association. It covers only federal tax considerations but not state tax structure. Changes in applicable laws or regulations may require revision. Dentists should contact qualified legal counsel for legal advice and qualified financial advice when considering applicable tax strategies.
This information was provided courtesy of U.S. Bank, an endorsed company of ADA Business Enterprises Inc. Learn more about U.S. Bank.