The tax code seems to get more complicated every year. Because of that, there are many tax deductions tax filers are eligible for that they simply don't bother to take. The first step is to find out what they are. After that, you can take a look at your tax return and see if any of them apply to you. Even if your tax return seems pretty straight-forward, some of these extra deductions can tip the scales and turn your tax owed into a refund.
In addition to the actual money you give to charities, you can also deduct any expenses incurred to help others. For example, you can deduct your mileage for charitable use of your car if you drive for a Girl Scout event. You are also able to deduct the cost of ingredients for the brownies you made for a charitable bake sale. You can even deduct the cost of the food donated for canned food drives conducted by qualifying charities.
You may already know that you can deduct the state taxes withheld from your check or paid in quarterly payments if you are self-employed. Despite this, many people overlook the fact that they can also deduct the state taxes they had to pay the previous year when they filed their taxes. If you owed state taxes when you filed last year and paid them, you can deduct it this year. You can also deduct any money withheld by the state or collected that applies toward a previous state tax debt.
If you own your own business and pay the other half of your Social Security tax yourself in the form of self-employment taxes, you can deduct it. Every employee, self-employed or not, owes 15.3 percent of their income for Social Security and Medicare taxes. With employees, the employer pays half of this, and the employee pays the other half in the form of deductions from their paychecks. If you are self-employed, you pay the other half yourself. You can deduct the half you pay yourself that is normally paid by employers.
The Earned Income Tax Credit (EITC) is a credit on your taxes owed based on your income. Although the EITC is higher if you have dependents, many people with no children are still eligible for this credit. The EITC not only goes toward your tax bill, but you can also even receive the EITC as a refund even if you did not own any taxes for the year. Every year, many people who qualify for the Earned Income Tax Credit don't actually claim it even though they are eligible.
Many parents understand that they are able to deduct a percentage of child care costs incurred so they can work. What they often miss is that summer camp costs are also deductible, provided the camp hours match the hours the parent is working. In addition to this, people miss that dependent care costs also apply to elder care costs or any dependent, not just children. Because this is a credit toward taxes owed and not just a deduction, this is an important one not to miss.
If you live in a state that does not have a state sales tax, you may feel that you miss out on deducting state taxes paid. In fact, the IRS created the state sales tax deduction for states that don't tax income. Although keeping track of every receipt throughout the year seems difficult, you can use the calculation provided by the IRS to determine your deduction, so keeping receipts isn't necessary to qualify for this deduction.
Many people are aware that they are able to deduct mortgage points when they first buy their homes. What they often don't realize is that they are also able to deduct points when they refinance their home, too. The main difference is that you can deduct the full amount of the points when you buy your home, but you deduct 1/30th of the points per year from refinancing. This is often a small deduction, which is why it is often overlooked.
The American Opportunity Credit is a credit for tuition, books, and other expenses incurred by a student or their parents that applies for four years of college. The credit has an income limit to qualify. This is a credit toward taxes owed, not just a deduction. Unlike the EITC, any excess cannot be received as a refund. The American Opportunity Credit allows you to receive a credit of up to $2500 per year.
Many students do not understand that when their parents or other relatives pay their student loans, they can actually claim the interest as a deduction themselves. The reason for this is that because the IRS looks at the payment, even if its made directly by the parent, as a gift to the student. In other words, the parent is giving each payment as a gift, and the student is the one considered to pay the interest.
Many people understand that expenses incurred from moving from one job to the next are deductible, but what about your first job? There is a deduction for moving expenses for college students who move to relocate for their first job out of college. This deduction is often missed because you only have one opportunity to claim it, and most people don't even realize that it's a valid deduction.