The government takes enough money from your paycheck throughout the year, and many people unwittingly pay more than they have to because they missed deductions they could have benefited from.
The government takes enough money from your paycheck throughout the year — there’s nothing wrong with not paying a dime more than you have to. But many people unwittingly overpay because they missed out on deductions they could have benefited from.
Sometimes tax breaks expire only to be reinstated by Congress. Some deductions are not commonly known and thus missed. And some people just don’t have the time to comb through it all to see what they’re eligible for.
However, plenty of people do take advantage of deductions (you need to itemize, though, which can be a whole other headache). According to TurboTax, the 45 million Americans who itemized deductions claimed a total of $1.2 trillion dollars, while the rest of taxpayers claiming the standard deduction accounted for just $747 billion.
Here are 10 deductions that filers often overlook (in no particular order).
Okay so technically it isn’t technically a deduction. Physician investor readers will be happy to learn that any reinvested dividends aren’t exactly deducted so much as if you pay attention you can avoid being taxed twice. According to Taxslayer.com, many people are taxed once when the dividends are reinvested and later when they are included in the proceeds of sold shares. There are enough costs involved with investing that can eat into a gain — don’t let this happen to you.
“Forgetting to include the reinvested dividends in your cost basis — which you subtract from the proceeds of sale to determine your gain — means overpaying your taxes,” TurboTax explained.
Points on refinancing
Last year would have been a good year to refinance your mortgage. And with interest rates at historic lows, most people probably did so. Any points paid to refinance a home can be deducted on a monthly basis over the life of the new loan.
If you’re still a self-employed physician, then you can deduct the half of what you pay for Social Security. The reason is because self-employed taxpayers are paying the full 15% (instead of splitting it with an employer). And you don’t even have to itemize to take advantage of this one!
Job hunting costs
Many physicians took advantage of the improving economy to look for a new job. In the last year vacancy rates and turnover rates increased, according to a survey by Cejka Search and the American Medical Group Association. If you were among the physicians looking to find a new employer, then many of the costs you accrued during that time can actually be deducted (as long as the job was in your same line of work).
Job hunters can deduct fees to agencies that helped with the job search, the cost of printing resumes, business cards, postage and advertising. And if you had to travel and stay overnight then mileage, parking, tolls, cab fares, food and even lodging may be deducted.
If you owed taxes when you filed taxes in April 2013 then you can include the amount with your state tax itemized deductions this April. Taxpayers can also deduct taxes paid toward real estate (found on your mortgage interest statement), state and local personal property taxes and state and local sales taxes.
The state sales tax is one of those that expired and was then reinstated. However, it might not be something you want to take. Congress lets you choose between deducting state income tax or state sales tax. Now, some states don’t have a state income tax, so choosing the sales tax is obvious. But take a look even if your state does impose an income tax — some filers might still come out ahead if they choose to deduct sales tax, according to Kiplinger’s.
Energy Savings Home Improvement Credit
It’s been said that credits are better than deductions since they reduce your tax on a dollar-by-dollar basis. Homeowners who install alternative energy equipment (solar water heaters, wind turbines, etc.) can take a credit of 30% of the total cost. And through 2016 there is not cap on this credit, so improve away!
Investment and tax planning
In order to get any tax benefit here, the total must exceed 2% of your adjusted gross income. But expenses that can be deducted are tax preparation fees and even the portion of legal or accounting fees that relate to tax planning. According to MSN Money, the legal time spent relating to the tax aspects of alimony and child support during a divorce would qualify. As would the tax aspects of estate planning, which becomes a necessity the larger your estate is.
Child care credit
Yet another credit that you don’t want to miss. Up to $6,000 of child care expenses can qualify for this credit. You can still run up to $5,000 of child care expenses through a tax-favored reimbursement account at work, but you can now claim the credit on up to an extra $1,000, according to TurboTax.
Out-of-pocket charitable contributions
Even the little charitable gifts from throughout the year can add up. Taxpayers can write off out-of-pocket costs incurred while doing good, such as ingredients for food prepared for a nonprofit’s soup kitchen or items bought for a fundraiser. Plus, if you drove your car for charity then you can deduct 14 cents per mile, according to TurboTax.
Student loan interest
If you’re still paying off your student loans, don’t forget to deduct up to $2,500 of the interest that you paid during the year. But if you’re a young physician whose student loan is being paid off by your parents until you get on your feet, then even that student loan interest can be paid off. The IRS looks at that money as if the parents gave the money to their child, who then used it to pay the debt. As a result, if you’re not claimed as a dependent, then you can qualify to deduct up to $2,500 of student loan interest paid by your parents.