It’s Tax Time Again! 7 Commonly Overlooked Tax Deductions
We’ve reached the time of the year where we all have the same thought: Please, please, please don’t let me pay too much on my income taxes!
Another thing on which all Americans can agree: We like (legal) tax deductions. Whether you’re doing your taxes yourself or paying a professional, we can help you make sure you don’t miss any commonly overlooked tax deductions to which you’re entitled. (And don’t forget to check out our list of the cheapest ways to calculate your taxes.)
1. Child Care Tax Credit
This is one of the most confusing rules in taxes. But if you pay for child care while you work, you can take a credit for a chunk of that payment. This credit is better than a deduction, because tax deductions only reduce the amount of income that’s subject to tax, while the credit reduces the actual tax bill. Make sure you take advantage of this credit and calculate it correctly!
2. Donating to a Charity
You may already deduct money you donate to charity, but you can write off other things you do for charity too. If you drive as part of the charity, you can deduct up to 14 cents per mile driven.
If you make a meal and donate it to your local homeless shelter, you can deduct the cost of the ingredients. Basically, anything that you give to the charity, other than your time, is deductible.
3. Earned Income Tax Credit
As described above, this tax credit is better than a deduction, because it directly reduces your actual tax bill. Still, many people don’t understand the EITC. It’s aimed at providing help for low income earners. You’ll have to go through a series of calculations to see if you qualify, which thwarts some people from seeking the credit, but if you qualify, you’ll be glad you took the time.
4. Mortgage Points
Another confusing deduction for a lot of people concerns points paid to obtain a mortgage rate. At the time you purchase a home, you can deduct all points paid for the year you obtain the loan. But if you refinance the loan later and pay points, you have to deduct those points over the life of the loan, such as 1/30th of the points per year on a 30-year mortgage. If you sell the house before the 30 years are up, you then can take a deduction for the points remaining. Confusing certainly, but important to understand to take deductions at the right time.
5. Recovering from Natural Disaster
If your home was hit by a natural disaster, you will be able to deduct some of the money you spent to put things back together, as long as insurance didn’t reimburse you for those expenses.
Some of the casualty loss calculations are a bit confusing, which means some people just skip the process, but this deduction can ease the sting of the disaster.
6. State Sales Tax
If you live in a state that doesn’t collect income taxes, you can deduct your state and local sales taxes from your federal tax bill. Although this can be a huge hassle to track this over 12 months and save every receipt, it’ll especially be worth your time during years in which you made large item purchases subject to sales tax, such as vehicles or construction materials for a home remodeling.
7. Student Loan Interest
If your parents or another party are helping you pay student loan debt, but the loan is in your name, you must take the tax deductions associated with it. Only the person legally obligated to the debt can take the tax break for the interest paid on the loan. The IRS treats the loan repayment as a gift to the child. In other words, in the eyes of the IRS, the parents are giving the money to the child as a gift, who then uses it to pay toward the debt … even if mom and dad write a check directly to the student loan provider.