When we last left off, I gave you some tips on what to do before the close of the calendar year to help alleviate some of the headaches you might face come tax season. At that time, it might have been easy to push the thought of taxes to the back of your mind. But now that we all have W-2s, 1099s, and other tax-related documents arriving in our mailboxes (or email), it is impossible to deny that tax season is upon us.
Did you know that about 45 million of us itemize on our tax returns – claiming more than $1 trillion in deductions each year? Even if you don’t itemize, there are a few credits and deductions that you are still eligible for.
Believe it or not, a lot of people simply overlook certain deductions and credits leaving real dollars on the table. Although it is always best to consult with a tax professional about your specific situation, here is a list of tax credits and deductions you might be eligible for.
#1 - Child and dependent care credit. This is a credit (even better than a deduction), and is often overlooked. If you have kids younger than 13, you may be eligible to take a credit for the costs paid to childcare providers and other kids’ programs (such as before and after school care and day camps). If you are married, then you and your spouse must both work full-time (or one of you must be a student or disabled). You can claim a credit of up to $3,000 for one child or up to $6,000 for multiple children. You can also claim the credit for dependent adults who live with you and cannot physically care for themselves. The IRS has a comprehensive explanation available here.
#2 - Cost of moving for your job. With the tight economy, many people have been forced to relocate for jobs. The good news is that you may be eligible to deduct the reasonable expenses associated with moving – AND you don’t have to itemize to qualify for this deduction. To deduct, you must satisfy 2 tests: 1) Your new workplace must be at least 50 miles farther from your old home than your old job location was (or if this is your first job, then your new job location must be at least 50 miles away from your old home); 2) As an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your arrival in your new job location. For more information, check out the IRS website.
#3 - Job search expenses. If you incurred costs looking for your first job or for a job in a new occupation, then unfortunately this deduction doesn’t apply to you. But if you incurred costs looking for a new job in your present occupation, they may be deductible, even if you do not get a new job. Deductible expenses include career counseling, employment and outplacement agency fees, amounts spent preparing and mailing your resume to prospective employers, and travel/transportation expenses. There is one catch – these costs must exceed 2% of your adjusted gross income (AGI) for the year. For more information click here.
#4 - Student loan interest (even if your parents help you pay your loans). You do not need to itemize in order to claim this deduction. Generally, the amount you can deduct is limited to the lesser of $2,500 or the amount of interest you actually paid. The loan must be a “qualified student loan,” meaning you took it out solely to pay higher education expenses. The right to claim this deduction goes to the person who is legally obligated to pay the interest – even if that is not the person who is actually paying it. So if your parents are helping you repay your loans, and you are the one who is legally obligated to pay, then you get to claim the deduction. For more information click here.
#5 - Charitable contributions. You can deduct contributions that you made to qualified organizations in 2012. You should have a good record of both monetary and noncash property that was donated so that you can support the deductions taken. For more information, the IRS has prepared this helpful summary.
#6 - State and local taxes (deductible on your federal return). This deduction includes income taxes, real estate taxes, and personal property taxes. The most overlooked deduction here relates to personal property taxes – those pesky taxes you pay each year to renew your car or boat registration are deductible from your federal taxes. Refer to this page for more information.
#7 - Home mortgages (including refinances). Most of us already know that interest paid on your home mortgage is deductible. But if you bought your home (or refinanced this year) and paid “points,” you may be eligible to deduct those points. If the points were paid for the purchase of a new home, then they can generally be fully deducted in the year that you purchased your home. Points paid for refinance are deductible over the life of the loan in most circumstances. For more information click here.
#8 - Medical and dental expenses. If you, your spouse, or your dependents have had significant medical or dental expenses this year, then keep this deduction in mind. In order to qualify, your medical expenses must exceed 7.5% of your adjusted gross income (AGI), and you can only deduct the amount in excess of that threshold. Deductible expenses don’t just include fees paid to doctors, dentists, hospitals, and pharmacies – you can also deduct payments for transportation to medical care as well as insurance premiums paid for policies that cover medical care or qualified long-term care. For more information click here.
This post was written by Kimberly Riccardi from Colorado PERA.
(Would you like to write a guest post for The Dime? Email us at email@example.com.)
Other articles you may be interested in:
Tax Season: 10 Tips to Help You Navigate