Tax Credits & Tax Deductions

Information On Tax Credits & Tax Deductions

Least Utilized Tax Deductions

Overlooking a tax deduction is like giving the federal government a bonus. It’s like you’re thanking the government for a job well done, even though you didn’t intend to.
Instead of giving away money that should be in your pocket, be sure to look carefully at your finances to see if any of these eight often overlooked tax deductions are worth claiming. Be sure to check the IRS link provided for more information:

1. Child-care credit. A credit is better than a deduction because it lowers your tax bill dollar for dollar. Instead of just reducing the amount of income that’s subject to being taxed, you’re reducing the tax bill. The child-care tax credit can be between 20% and 35% of what you pay for child care while you work. Expenses are capped at $6,000 for two or more children.
2. State sales taxes. Choosing between deducting state and local income taxes versus state and local sales taxes is a no-brainer for most people: income taxes are higher. But in states that don’t have an income tax, it’s an easy deduction. The IRS has a calculator to figure out which is bigger — sales or income taxes — but remember that big-ticket purchases such as a car, boat or homebuilding materials could make the sales tax deduction a better deal.
3. Reinvested dividends. Mutual fund dividends are often used automatically to buy extra shares. Each reinvestment increases your tax basis in the fund. That then either reduces the taxable capital gain or increases the tax-savings loss when you redeem shares. You might not be redeeming shares now, but not including the reinvested dividends in the cost basis can lead to double taxation of the dividends.
4. Small charitable donations. The big donations in cash, good or services that you make to charitable organizations and the tax deductions that you get for them are well known. But remember that even small, out-of-pocket donations such as groceries you buy to make a casserole for a charity are tax deductible. Driving your car for charity, for example, can be worth 14 cents per mile. Keep your receipts and know that contribution totals of $250 or more require documentation from the charity.
5.  Medicare premiums for self-employed. If you run your own business, you can deduct the premiums you pay for Medicare Part B and Medicare Part D, and the cost of supplemental Medicare, or medigap, policies. The deduction isn’t subjected to the 7.5% of adjusted gross income test for itemized medical expenses.
6. Student loan interest paid by parents. Since you’re liable for your student loan debt, you can claim the interest paid on it as a tax deduction, even if your parents paid off the loan for you. The loan payment by your parents is treated by the IRS as a gift to their child. If you’re not claimed as a dependent by your parents, you can deduct up to $2,500 in student loan interest that your parents have paid. It’s your debt, so it’s your tax deduction.
7. Job hunting costs. These costs can be deducted as miscellaneous expenses if you’re looking for a position in the same line of work. They must exceed 2% of your adjusted gross income. Costs incurred while looking for your first job don’t qualify.
8. Moving expenses. These expenses for getting to your first job are deductible, and you don’t have to itemize. The job must be at least 50 miles from your old home.  If it’s not your first job move, you can still qualify for the deduction, but it requires a little more work: The new job must be at least 50 miles farther from your old home than your old job location was. Hiring a moving company is finally worth the cost.

There are plenty more tax deductions to claim, or at least look into to see if you’re eligible. Ask your accountant or friendly IRS agent for more tips.