Benjamin Franklin said it best when he remarked, “In this world, nothing can be said to be certain, except death and taxes.”
Thanks to the constantly changing US Tax Code, people are letting money slip through their fingers because there are a lot of tax deductions they simply aren’t aware of. You work hard for your money, and while it is all taxable, we’ve created this guide to help you get some of that money back.
What Are Tax Deductions?
Before we get into the deductions you may be missing; we want to clear the air of what, exactly, a tax deduction is. A tax resource created by Northeastern University Online Business program describes tax deductions as a “reduction in the income that is subject to federal or state taxes.” These deductions are to decrease the amount taxable income the government can take from.
A lot of people think that the government wants to take as much money from the people as they can through taxes; and throughout the years, the relationship between an employee’s benefits and the tax code has changed quite a bit throughout the 20th century. However, the government includes numerous incentives to encourage people to improve their community and beyond.
Tax Deductions You Don’t Want to Miss Out On
Let’s take a look at the tax deductions that you don’t want to overlook when you do your taxes this year.
Medical and Dental Expenses.
If you have health coverage but still had to pay out of pocket for medical or dental expenses, you can deduct those expenses on your taxes – as long as the total expenses for yourself, your spouse, and dependents exceeds 10 percent of your AGI (adjusted gross income). If your spouse or yourself are over 65 years old, you can deduct medical expenses that exceed 7.5 percent of the AGI.
Unfortunately, if you do not have medical coverage for more than three consecutive months, you may be hit with a tax penalty. This penalty, for the 2017 tax year, is 2.5 percent of your total household AGI, or $695 for each adult, or $347.50 for each child, up to the maximum penalty of $2,085.
Tax Prep Fees
It doesn’t matter if you have an accountant or if you use a software, you can write off those fees on the miscellaneous tax deduction list. The cost can include fees for tax prep and electronic filing fees. The only caveat is the fees must exceed 2 percent of your AGI.
Performing Artist Expenses
For all those starving artists out there, you will want to make sure you claim this deduction on your taxes because this will be the last year you’ll be able to claim this deduction. With this deduction, you can receive reimbursement for the business expenses you incur as a performing artist. You will need to use the Form 2106, Employee Business Expenses for more details.
There is a slew of deductions you can make as a homeowner. These deductions can include mortgage points, mortgage interest payments, real estate taxes, uninsured losses from natural disasters, damage or theft, annual property taxes, and even moving costs if you are moving and your new workplace is more than 50 miles away.
If you plan on claiming the moving expenses, there are strict rules set in place to reduce the number of claims people make. Some of these rules include:
· Your new workplace must be more than 50 miles away from your old place of employment
· You are employed at the new job for at least 39 weeks following the move
· The moving expenses are not reimbursed by your employer
For more details about the moving deduction, refer to Publication 521, “Moving Expenses.”
If you are self-employed, you already know how great it is to be your own boss. Unfortunately, you still have to pay into Social Security and Medicare. This means you have to pay 15.3 percent of your total wages on top of the regular income tax, whereas if you were just an employee, only 7.65 percent would be taken.
To ease this burden, the IRS gives self-employed individuals the ability to deduct one half the total of self-employment tax they would owe for the year.
Retirement Plan Contributions
Any contributions made to a tax-deferred retirement account may be tax deductible. These types of accounts include 401K, 457, or 403B plans, traditional IRAs, I or EE Bonds, Whole Life Insurance, fixed deferred annuities, or variable annuities.
Job Search Expenses
Looking for work can be expensive, and you can add those expenses to your tax deductions. If you are going to itemize those deductions, you can deduct:
· Resume and Application Costs
· Agency Fees
· Child Care
· Phone Calls
· Internet Fees
You will want to consult IRS Publication 529 “Miscellaneous Deductions” for more details.
Local and State Sales Tax
Live in a state with high sales taxes? Some tax advisors will say that you have the option of deducting either state and local income taxes or state and local general sales taxes during the year. If you live in a state that doesn’t tax the resident’s income, you may want to consider deducting state and local sales taxes that have been paid.
You can claim tax deductions and receive tax credits for the cost of putting yourself, a dependent, or a spouse through college or university. You can claim the lifetime learning credit or the American Opportunity Credit, but you cannot claim both.
The deductions you can make include:
· Tuition and fees deduction of up to $4,000 for you, your spouse, or your dependent
· Student loan interest deduction of up to $2,500, if your modified adjusted gross income (MAGI) is less than $80,000, or $160,000 if filing a joint return
Kindergarten to 12th-grade educators can deduct up to $250 on qualified educational expenses that have not been reimbursed by the school. These expenses can include things you’ve purchased for the classroom or professional development courses for your field.
If you’ve sold your home and gained a profit, you can exclude up to $250,000 of the profit from your income. If you’ve filed jointly with your spouse, you can exclude up to $500,000.
Investment Fees and Expenses
If you have several investments, the fees you pay to someone to manage those investments can qualify as a miscellaneous deduction. These costs could be anything from the fee for investment counseling, custodial fees, software and online services to manage said investments, safe deposit rental fees, and even transportation fees going to and from your investment advisor’s office.
If you are going to itemize your taxes, you can deduct some legal fees if it relates to your job (whether keeping or doing), taxable alimony, or even fees you paid for tax advice. With this said, those fees must equal 2 percent of your AGI.
You work hard for your money, so why shouldn’t you do whatever you can to make sure that you get to keep it? There are countless tax deductions available if you know what you’re looking for. These are just some of the common tax deduction people tend to overlook. A reputable tax consultant may be able to find more deductions and save you even more money!