We all want to pay the least amount of taxes and to get the highest refunds possible. With a complicated tax code that is difficult for even experts to keep up with, it is easy to miss savings along the way. So, we have listed the deductions that are most frequently missed with the average tax filer so you can pay the least amount this year.
We have broken them down into four sections. Income, adjustments to income commonly referred to as above the line deductions, itemized deductions which can be taken in place of the standard deduction, and tax credits which reduce tax liability.
Three areas of income where mistakes are common involve dividends, jury duty pay, and gambling or casualty losses.
Dividends & Capital Gains. Dividends sold within a standard brokerage account are taxable as ordinary income in the year they are sold. Capital gains are taxed at a lower rate, also in the year the investment is sold. It is common for long-term investors to reinvest dividends received throughout the year, rather than take payments. Reinvested dividends are used to purchase additional shares at the time the dividends are issued. This reinvestment increases the cost base basis for which you are taxed, potentially reducing the tax liability on the investment. Cost basis may also be inaccurate if you transferred from one broker to another. All sales and costs basis should be compared against the purchase price, adding in reinvested dividends.
Jury Duty Income is generally taxable and you will receive a statement which documents jury duty pay to be included on the income portion of the tax return. Deductions may be taken for expenses including mileage and parking fees. It is a common practice for employers to offer regular pay for employees who serve on a jury. In exchange many employers require the employee to sign over the jury duty check. When this occurs, you do not actually receive the income and this income may be deducted from your income because you did not actually receive the funds.
Gambling and Casualty Losses allow you to offset winnings with your losses but is only available for those who itemize. Documented losses to offset winning may be included for gambling such casino winnings, horseracing, lottery, and even bingo if the proper records are kept.
Casualty Losses occur when damage to the home or vehicle occurs due to a natural disaster or vandalism not covered by insurance. More than a loss of 10% of the assets value must have occurred in order to qualify for this deduction.
Above The Line Deductions
These deductions are used to reduce total income before AGI or adjustable gross income is established. The AGI is an important figure because that is the number most applicants use to establish income and applies to everything from loan applications to financial aid for college.
Moving Expenses qualify for jobs in the same or similar field that are more than 50 miles from your current commute. For example, if you have a 5-mile commute from your home now, the new job must be 55 miles away from your home to qualify. Moving expenses must occur within 12 months of your new employment to qualify. Self-employment might qualify if IRS qualifications are met. Search costs for new employment qualify as a deduction under itemized expenses, not moving expenses.
Student Loan Interest paid during the year may be deductible up to $2500 per year, if you are within the stipulated income range. Deductions are available for accounts in your name, and married couples must file jointly to claim the benefit.
Tuition and Fees deductions covers college tuition and fees, but does not include room and board or other out-of-pocket costs. Up to $4000 is available for those with designated income ranges and is allowed for expenses related to yourself, spouse, or dependent claimed on your return. Other educational tax credits may give you a greater benefit. You may choose the one with the highest benefit.
Tax filers choose the standard deduction or itemized deductions depending on which offers the higher benefit. Commonly missed itemized deductions include the following:
Mortgage Points and Mortgage Insurance. Most homeowners calculate mortgage interest based on the form your lender sends. Real estate property taxes may also be included as a deduction. Buyers who put less than 20% down typically pay a monthly mortgage insurance premium commonly referred to as PMI. These payments are also deductible on your tax return. Paying points at the time of purchase is considered pre-paid interest by the IRS, and is therefore also deductible. Home property insurance is not deductible, however, late payments and prepayment penalties paid in the previous year may also be included as a deduction under interest.
Charitable Contributions and Miles. Donations to your favorite charity may reduce taxable income if they are made to a qualified nonprofit organization. Deductible amounts are determined the fair market value of the item. In order to take deductions for fiscal property over $500, you must itemize and established fair market value. There are online calculators to help determine how much household items should be valued at. For audit protection itemizing every donation with accompanying pictures will help prove your deductions are valid. Donations over $500 are reported on a separate form and anything over $5000 must include an appraisal. The most frequently missed deduction is the ability to deduct mileage to and from volunteer activities. You may deduct actual vehicle expenses or mileage as long as records are maintained.
Unreimbursed Employee Expenses are expenses required for employment that you paid out-of-pocket. Common items include tools, safety equipment, uniforms, travel expenses, passport costs, and subscriptions to professional journals or publications. Documented mileage for driving your personal vehicle for company use may be deducted, but mileage to and from work is not.
State and Local Taxes may be deducted, including sales tax, if you itemize and keep detailed records. Property taxes, income taxes, and real estate taxes all count as a deduction.
Tax credits are the most valuable tax benefits because they reduce taxes owed dollar for dollar. Some credits can result in a refund even if you don’t know taxes. Two commonly missed tax credits include the dependent care and retirement savers credit.
Dependent Care Tax Credit assists with the cost of paying for caregivers who watch your children. These costs may include cost of daycare, afterschool care, and in some cases summer camps. Credits are available for children under the age of 13.
Retirement Savers Credit provides an additional benefit for low to moderate income families who make retirement contributions to a qualified plan. Traditional IRA or 401(k) contributions receive a tax deduction upfront and the tax credit giving you a double deduction. Roth IRA contributions do not provide an initial tax benefit but qualify for the retirement savers credit in the year the contribution was made. Retirement accounts can accept contributions up to the tax deadline, giving you a last minute way to reduce tax liability. Adjustable gross income caps out at $61,000 for married filing jointly and gives up to 50% of the contributions as a credit, based on income.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you're just not seeing your balances go down, call Timberline Financial for a FREE financial analysis today. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don't have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website here http://timberlinefinancial.com/contact-us/.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a free financial analysis.
Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high-interest credit card debt any longer.
Call (855) 250-8329 or get in touch with us by sending a message through our website https://timberlinefinancial.com.