Don't overpay taxes by overlooking these important tax deductions. Below are the most common deductions taxpayers miss on their tax returns. Check to see if you can keep more money in your wallet this year.
This write-off is primarily for those who live in states that do not impose an income tax such as Texas, Florida, Washington, etc. For itemized deductions, you must choose between deducting state and local income taxes, or state and local sales taxes. For most taxpayers of income-tax states, the income tax deduction normally is a better deal. IRS provides tables for residents of states with sales taxes showing how much they can deduct. In addition, if you purchased a vehicle, boat, airplane or any big ticket item, you get to add the state sales tax you paid to the amount shown in IRS tables for your state, to the extent the sales tax rate you paid doesn’t exceed the state’s general sales tax rate. For more information about the sales tax deduction, go to http://apps.irs.gov/app/stdc
It’s difficult to overlook the sizable charitable gifts you made during the year by check or payroll deduction to your favorite charity. However, the little things add up too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for you favorite recipes you regularly prepare for a nonprofit organization’s soup kitchen, for example, or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution. Also, if you drove your car in 2016 for charity purposes, remember to deduct 14 cents per mile.
Job-hunting expenses incurred while looking for your first job are not deductible, but moving expenses include travel expenses such as lodging, storage cost and personal vehicle use to get to that first job are deductible. You get this write-off even if you don’t itemize because it is an above the line deduction.
A tax credit is much better than a tax deduction because it reduces your tax bill dollar for dollar. So missing a credit is even more serious than missing a deduction that simply lowers the amount of income that is subject to tax. Most people, however, overlook the child and dependent care credit because they have the dependent care reimbursement account at work. For example, the law allows you to have pre-tax benefit up to $5,000 qualifying expenses through a tax-favored reimbursement account at work. However, up to $6,000 can qualify for the credit if the taxpayers have two or more qualifying individuals even though the old $5,000 limit still applies to reimbursement accounts. So if you run the maximum $5,000 through a plan at work but spend more than that for child care, you can claim the credit on up to an extra $1,000.
Millions of lower-income people miss out on this credit every year. According to the IRS, about 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it. Some people miss out on the credit because the tax rules can be complicated. Others simply are not aware that they qualify. The EITC is a refundable tax credit and not a deduction, ranging from $506 to $6,269 for 2016. To get the credit, you must file a tax return even if you don’t owe any taxes. The credit is designed to supplement wages for low-to-moderate income workers. But the credit doesn’t just apply to just lower income people anymore. Tens of millions of individuals and families previously classified as "middle class" could consider "low income" because they lost a job or took a pay cut or worked less hours last year. The exact credit you receive depends on your income, marital status and family size so you may qualify even if you don’t have any children.
Did you owe taxes when you filed your prior year state tax return? Then remember to include that amount with your state tax itemized deduction on your current year tax return, along with state income taxes withheld from your paychecks or paid via quarterly estimated installments.
When you buy a house, you get to deduct all the points paid to obtain your mortgage. However, when you refinance a mortgage, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage or $33 for each $1000 of points. Doesn't seem like a lot, but why throw money away?