Death and taxes are a fact of life — and so is forgetting to claim all your deductions on your tax return. The accountants who are overwhelmed with tax questions and returns at this time of year all say the same thing: Most people aren’t getting what’s owed to them by Uncle Sam.
But first, a little more salt in the proverbial wound. The IRS (that big, ol’ tax organization we have come to fear so much) has said a few interesting things about tax time: Most taxpayers can expect to get a refund. And yet millions of taxpayers overpay their taxes each year.
The official IRS website has an extensive list of individual and business credits and tax deductions, but for those of us who don’t speak “tax” or who don’t have a personal accountant on speed dial, it seems easier to file minimally without rocking the boat.
Unfortunately this “keep it simple” attitude during tax season is bound to cost you if you’re missing any of these commonly overlooked tax deductions, so we asked the experts for a little help.
1. Moving expenses for your first job
Getting your first big job is exciting, and it could also provide a pretty nice tax break too if you’re a new college grad. Andrew Poulos, principal of Poulos Accounting & Consulting, Inc. in Atlanta, Georgia, says, “Many college graduates have to move to another city when they get their first job. While the job-hunting expenses are not deductible for the first job, moving expenses are tax-deductible as long as the first job is at least 50 miles away from the old home. So if a person moves within the same state but the job is at least 50 miles from their old home, they can deduct the moving expenses (U-Haul rental, mover cost, hotel cost, packing supplies, storage fees and driving your own car during the move). If you drive your own car for the move, you can deduct 23 cents a mile and any parking and tolls that are paid.”
2. American Opportunity Credit
No matter how you feel about your tax burden, we are still living in the land of opportunity, and according to Poulos, you may benefit from the American Opportunity Credit big time if you are still in your first four years of college. “The maximum credit is $2,500 per qualifying student each year. The credit gets phased out for single individuals who have a modified AGI [adjusted gross income] of $80,000 or more and [for] married couples with income of greater than $160,000. Again, this is a tax credit, so it reduces the bottom-line tax liability dollar for dollar,” he says.
Stephen Dash, CEO of the multi-lender student loan marketplace Credible, adds, “The American Opportunity Tax Credit is the most valuable one because you can receive up to $2,500 back for books, supplies and equipment needed for your course of study. Other deductions to look into include the Lifetime Learning Credit (up to $2,000) and the tuition and fees deduction (deduction of up to $4,000). However, you can’t claim room and board, transportation, insurance and medical expenses as qualified education expenses.”
3. Student loan interest paid by parents
Parents who are paying for their child’s student loans could also be giving them a tax break if they opt to not claim their child on their tax return. “Student loan interest is deductible by an individual who qualifies to deduct the interest. However, there are times when parents help their child by paying their student loan debt. When a parent pays their child’s student loan, the IRS treats it as if the money was paid by the child and the parent provided the money to their child,” Poulos advises. “The important thing for this deduction is that the child isn’t claimed as a dependent by the parent(s). If the child claims himself or herself, he or she can deduct up to $2,500 of student loan interest paid by the parents each year. This deduction is an above-the-line deduction, so the person doesn’t have to itemize to claim the tax deduction.”
Dash estimates that this potential $2,500 deduction could break down to $625 in savings, depending on your tax bracket. He says, “Borrowers eligible for this deduction earn less than $80,000 a year and don’t have anyone else claiming them as a dependent on their taxes. Additionally, borrowers must have paid interest on a student loan in their name during the 2015 tax season and used the loan to enroll at least half-time in a degree program.”
4. Child care credit
Parents of young kids paying out the nose for day care, you won’t be left out at tax time either. Poulos says that while it’s easy to confuse the child care tax credit with a personal exemption for claiming a child on a tax return, there is a distinct (and often lucrative) difference. “The child care credit is a credit that reduces the actual tax liability, dollar for dollar. The personal exemption is only a deduction that reduces the taxable income and doesn’t have the same net effect. The credit is between 20 and 35 percent of the amount paid for child care expenses, as long as the children are up to age 13.”
5. Airline fees and tips
Here’s a fun one — traveling for business as a self-employed professional could mean more deductions on baggage fees and tips paid to curbside airline attendants, says Poulos. “Baggage fees and tips paid are tax-deductible travel expenses, along with the cost of airfare, hotel cost and other travel expenses. It’s important for self-employed individuals to keep good records to substantiate the fees in case they get audited by the IRS,” he explains.
6. Energy-efficient home improvement credits
Homeowners who also care about the environment (and improving property value) may be eligible for a special tax credit that might not be around next year. “Homeowners who do energy-efficiency home improvements may qualify for the non-business energy property credit. This was a credit set to expire at the end of tax year 2015, but Congress extended it,” Poulos says.
He continues, “The credit is worth 10 percent of the cost of certain qualified energy-saving improvements done on your primary residence. The energy-efficiency improvements may include items such as insulation, windows, doors and roofs. The credit has a maximum lifetime limit of $500, of which only $200 can be used for energy-efficiency windows. It’s important to have written certification from the manufacturer that their product qualifies for the tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but it’s important to keep it with your tax records in case the IRS inquiries about your credit.”
7. Lifestyle changes
Whether you coupled up or became single again in the last taxable year, lifestyle changes have a big impact on your tax return, says Mark Steber, chief tax officer at Jackson Hewitt. “We see a lot of people miss credits and deductions related to life changes. For example, some clients get divorced and don’t realize you can file Head of Household instead of Single, with better deductions and a lower tax rate schedule.”
8. Failing to file
If you fall below a certain income level, you may not be required to file taxes. But before you cheer with glee, consider that saving yourself the hassle could also cost you in a potential tax break. “One big miss is from individuals who don’t file,” Steber says. “Under specific income levels, taxpayers are not required to file taxes. However, these folks may qualify for large credits that are available, like the Earned Income Tax Credit, which can be up to $6,242. Unfortunately nearly 1 in 5 people who qualify fails to claim it, many from not filing their taxes.”
9. Professional tax prep help
Paying for the outside help of an accountant doesn’t come cheap, but it is an expense that will pay for itself, at least in part, when those accounting fees are factored into your annual deductions. Steber explains, “Many individuals don’t realize that the cost of preparing your taxes can be claimed if you itemize your deductions. This means that having a professional tax preparer find all of your eligible credits and deductions could actually lower your tax bill. Consider that one missed credit or deduction could more than cover the cost of having your taxes completed by a tax professional.”
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