As the tax filing season has recently kicked off, you may be gathering all of your paperwork. This may include W-2 forms, 1099s, 1098s, broker statements, and the endless amounts of different types of receipts. While you’re gathering all of the necessary information, you should be mindful of all of the tax deductions that you may be able to claim on your tax return. This includes certain lesser known write-offs that can reduce your tax liability.
Accounting for your dividend reinvestment plan property
This isn’t a tax deduction persay, but those that invest in dividend reinvestment plans (DRIPs) sometimes don’t add each dividend to the basis of their stock or mutual fund shares. If the tax basis isn’t accounted for property, the taxpayer could end up paying a lot more in taxes for capital gains when they eventually sell those sales.
You can deduct either state or sales tax
If you itemize deductions on your return, you could either deduct state income taxes or state and local sales taxes. This is an especially important tax deduction for those that live in states that don’t levy a state income tax such as Florida, Texas, Alaska, Nevada, South Dakota, Washington or Wyoming (IRC Sec. 164(b)(5)).
Student loan interest
Those with student debt may deduct the lesser of $2,500 or the amount of interest paid. This deduction counts for federal and private loans but you are disqualified if your status is married filing separately. In addition, taxpayers fully phase out of the deduction when modified adjusted gross income (AGI) is $75,000 or more ($155,000 for joint filers) for 2013. The deduction phases out for 2014 when modified adjusted gross income (AGI) is $80,000 or more ($160,000 for joint filers).
There’s often a question as to who can deduct student loan interest when a parent makes the payment on behalf of the student. Generally, the individual that is legally obligated to pay the interest can claim the deduction. Therefore, the student can actually still claim the deduction when a parent makes payment on their behalf assuming they aren’t a dependent on their parent’s tax return.
Are job-hunting costs tax deductible?
They are if the the job relates to a similar occupation to your current or previous profession. What does this mean exactly? It effectively means that you aren’t allowed to deduct expenses if you are considering a career change. For instance, it would not fly with the IRS if you tried to deduct expenses associated with becoming a marketing professional, if you are currently a doctor. This also means that recent graduates that have never had an occupation can’t deduct any job-hunting related expenses.
If you do fit the above criteria, you can deduct the following expenses: resume preparation, guidance counseling, head hunter fees and travel costs ($0.555 per mile standard rate). However, if any of these expenses are associated with a personal activity, then the expenses are no longer deductible. Other items that aren’t deductible include your phone bill or internet service, which you may think is ordinary and necessary expenses for gaining a new job. The IRS does not look at it that way, since it is technically not new or unique to your job search. Expenses that you incur that are reimbursed by your future employer are also not deductible.
Are job-related moving expenses deductible?
Yes, if the associated expense is ordinary and necessary. Please note that this is an “above-line deduction,” which means that you can deduct the expenses even if you claim the standard deduction on your tax return. Taxpayers can specifically deduct moving expenses associated with lodging, transportation (airfare, vehicle mileage, parking fees and tolls), and the cost to package, crate, store, insure and transport actual household goods and personal property. But, this doesn’t apply to the cost of the meals while traveling. And, if your employer puts you up in temporary housing before you move, that’s considered income to you.
Retirement plan contributions
While the deadline passed for contributing to a 401(k) for the 2013 tax year, taxpayers can still deduct the full amount of their traditional IRA contributions of $5,500 or $6,500 if 50 or older. They up until April 15th or their tax filing date to contribute to their traditional IRA or Roth IRA. This also applies to spousal IRA accounts which are similar to any other IRA, except it allows a working spouse to contribute up to $5,500 ($6,500 if 50 or older) into an account for their non-working spouse that has little to no earned income. However, there are limitations to how much you can deduct depending on your income.
Deducting un-amortized points from a prior refinancing
Many homeowners that refinance their home for a second time have un-amortized points from the first refinancing. Generally speaking, you can deduct the entire un-amortized points when you do the second refinancing. For instance, if you have $2,000 left of un-amortized points from a prior refinancing; you can deduct that entire amount in the year you do the second refinancing. If this situation already occurred and you never deducted the un-amortized amount, amend your tax return for that year.
Mortgage insurance deduction
Those earning less than $100,000 can deduct their mortgage insurance premiums in 2013 (IRC Sec. 163(h)(3)). This is particularly helpful to low income families that have difficulty affording homes and insurance.
Self-employed health insurance costs
They can deduct health insurance costs for themselves and their families when calculating their self employment tax. The catch is that the benefit doesn’t apply to those with a secondary business and a full-time job in which their employer provides for a subsidized health plan. Those with spouses that have an employer subsidized health plan are also disqualified from the deduction.
Self-employed commuting expenses
When traveling from your home office to other temporary business locations or clients sites, you can deduct the actual travel expenses or claim the standard mileage rate $0.565 per mile.
Charitable donations
You can deduct charitable donations but there are restrictions. Generally, you cannot claim a charitable deduction if your total tax deductions for charitable contributions for the year is over 50% of your adjusted gross income (AGI). If there is a capital gain associated with the Fair Market Value of contributed property, you could only contribute up to 30% of your AGI unless you choose to reduce the gain associated with the FMV of the property. In some instances, you may not be able to contribute more than 20% of AGI.
More tax questions? Browse answers or ask your tax deduction questions online.
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