What are some of the common overlooked tax deductions?

Everyone cringes at that time of year when they have to do their taxes. It’s part of American life and a right-of-passage for those that enter the work force. Over the years, many of the tax deductions that helped working folk have been removed or changed to be almost negligible. However, there are still quite a few that remain in place. Here are some commonly overlooked tax deductions.

Noncash contributions:
Contributing to an IRS recognized non-profit organization is a way for many of us to empty out our garage or closets. Make sure that you have a signed and dated receipt from the organization, and keep a detailed list of the items donated. Auditing agents will want to know exactly what was contributed. Unless the item is new, it’s best to use general garage sale prices for the value. Don’t overestimate the value of an item, as this can come back to haunt you. The IRS values a bag of clothes at around $25. If you are contributing a car or boat, get a print out of the actual value on-line, based on the condition. There are a few companies out there that are reputable and will give you a free value, such as Kelley Blue Book. If you have a high end item that is worth a lot of money, pay to get a qualified expert give you a written evaluation of the item. This is particularly important when donating art, antiques or valuable jewelry. Keep a detailed record of the mileage (start and return miles), because that’s one of your tax deductions as well. If you do any volunteer work for a non-profit, that mileage is also deductible. Do research on the mileage tax exemption, as there might be certain guidelines.

New and Old Points in Refinancing:
Given the state of the economy, many people have refinanced their home to get the best interest rate. The points charged by the finance company are a tax deduction. Also, all unamortized points on an old refinancing are deductible in the year of the new financing. Be sure to keep a detailed statement listing new and/or old amounts.

Health Insurance payments:
Health insurance premiums that are not pre-tax are deductible. These costs are added to the total year’s medical payments and a percentage of these costs can be taken as an actual medical deduction. Including your health insurance premiums may put you over the percentage that you are expected to pay and give you that added tax deduction.

Educator Expenses:
If you are a qualified educator, you can take what is called an above-the-line deduction for as much as $250. This can include supplies, books, computer equipment, and more. You are considered a qualified educator if you are a kindergarten through 12th grade teacher, instructor, aide or principal.

Student Higher Education Expenses:
2012 has included the American Opportunity and Lifetime Earning Credits. This can be up to $2,000 per student. The standard education deduction is around $4,000, as long as your income is below $80,000 ($160,000 for a joint return). Compare the two and take the larger. You can take one or the other, but not both.

Home Improvement Energy Savings Credit:
One of the best, as this is a dollar for dollar tax reduction. A 30% credit for outside doors, pigmented roofs, skylights, high efficiency furnaces, water heaters and central air conditioning units. Not all energy efficiency improvements qualify, so check with a manufacturer before purchasing. This credit program has been extended until 2016.

Retirement Plan Tax Credit:
An incentive for those of us to contribute to our retirement accounts. There are a variety of qualifying retirement plans that will help reduce overall income and taxes that you have to pay.

Investment and Tax Expenses:
This is beyond just paying the accountant or tax preparation company. This also includes the payments to your investment counselors or broker.

Property Taxes:
This is one that the IRS looks forward to reviewing if you are ever audited. When you get your property tax statement you will notice that it’s divided into “Ad Valorem” and “non-Ad Valorem.” Only one of those is tax deductible. The IRS knows that you, and probably your accountant, take the full amount and if they can’t get you on anything else- they know they have that little gem that they can ding you with (along with the penalty fees).

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.