Deductions are the best part of filing taxes, and most people are missing out on them, sending more money to the federal government than required. But before I review some of the deductions people miss on their tax returns let me make a quick suggestion on how to stay away from an IRS Audit.
- Don’t file fictitious or exaggerated deductions
- Be aware that submitting higher than average deductions in frequently abused areas like automobile deductions could create an audit flag with the IRS. The cautious route for deductions is to keep this advice in mind: If in doubt, leave it out!
- NEVER send anyone your original receipts. They get lost by CPA’s Tax Preparers, Tax Attorney’s and the IRS. Keep your original receipts and send copies. This is the eighteen years of experience talking.
Now’s let’s look at some great deductions you may qualify for.
Below is a list of tax deductions you might not be aware of, and should include on your tax return or provide relevant information to your CPA for tax preparation.
Tax Deductions That You Could be Missing
- State sales tax Sales tax may be a deductible against your federal income taxes as an itemized deduction and is claimed on tax form Schedule A.
Individuals may deduct either state and local income taxes or sales taxes paid during the year, but not both. Taxpayers will need to choose between these two state tax deductions.This deduction usually works best for people who live in a state with no income tax, or whose sales tax credit is larger than the state income tax deduction.
- Tax preparation fees Fees charged by tax preparers are eligible, and you may deduct the money spent on the previous year’s tax prep.
- Cell phones If you use your cell phone for the convenience of your job the depreciation value and monthly cost may be deducted
- Medical Expenses You can deduct the cost of most medical expenses accrued during the year that are not covered by insurance. This includes eye-care (glasses & contacts), contraceptives (by prescription), hearing devices, travel expenses related to medical care, and childbirth classes. The self-employed, can deduct 60% of health insurance premiums.
- Home business expenses The items that can be claimed for deduction of an in home business may include portions of grocery costs, mortgage/ rent, office supplies, utility bills, computer hardware and software, parking and other business related expenses. The IRS tax code has an extensive section on home-based business deductions, but this is an area where taxpayers try to pad losses and the IRS can consider these tax scams.
- College tuition & Education Individuals and dependents are eligible to deduct up to $4,000 in college tuition fees (tax law subject to change).
- State taxes If your state charges income tax, The IRS allows deductions on what you paid to the state last year, minus fees and penalties.
- Alcohol and drug recovery the IRS allows you to deduct expenses related to substance abuse rehab and recovery efforts, which could include outpatient treatment centers.
- Gambling losses The IRS makes you pay taxes on gambling winnings, and they will allow you to deduct some of your gambling losses.
- Student loan interest paid others Until recently you could only deduct student loan interest if you were personally liable for the debt and paying it yourself. Now if others such as your parents are paying back the student loan, the IRS determines this a gift and if you are not claimed as a dependant you can deduct up to $2500.
- Job Searching If you are unemployed the IRS allows for job search related deductions. Any expenses you accrue while searching for a job are deductible as are education to improve work skills, clothing needed for work, tools, and union dues. Most out of pocket expenses on something work related are allowed.
- Employment Related Moving expenses If a new job is more than 50 miles away you can deduct the cost of moving and other expenses related to the job move
- Natural disasters & theft If you are the victim of a natural disaster or theft, the IRS allows you to claim a deduction for the losses.
- Charitable contributions All donations to charities, non profits and registered 501 c3 organizations are deductible. You may also deduct additional expenses related to charity work such as transportation, materials, stamps and other ancillary costs.
- Parental Support If you furnish more than half of the support for your parents, they can be claimed as dependents on your tax return and you may receive a tax deduction.
- Home Ownership Home ownership can provide a lot of tax shelter if you keep track of your entire home owner expenses and itemize all costs. This is best discussed with with your tax preparer to make sure all claimed deductions are legal.
- Last years lost deductions If you did not qualify for deductions last year because of your income you may be able to claim them for this calendar year.
- Investment Expenses Investment advisory fees, safe-deposit boxes, margin account interest expense, IRA trustee’s administrative fees, worthless stock, devalued securities, and embezzlement losses are legitimate deductions related to investments. Your CPA or tax preparer can help you determine how much investment losses may be deducted.
Now that your armed with a wealth of information about what you may or may not be able to deduct this year, what are you going to do with it? Keep clear track of all your expenses, and if you plan on taking advantage it’s always best to have a tax person you trust to help guide you. It’s your job to make sure they have all the information, and it’s their job to make sure that information is used to your full advantage.
Jeff Fouts, Tax Attorney
Here’s a bio of sorts. I’m happily married with two kids. I’m a real small town tax lawyer, (Ellijay, pop. 1,584) not some fictional marketing character. I’ve represented tax clients against the IRS in all 50 states, and in 21 foreign countries. I have 18 years experience, thousands of satisfied clients, about 8 critics at last count, and an A+ BBB Rating.
I’m a member in good standing of the bar and have active memberships in courts from Georgia to Washington D.C., including the U.S. Supreme Court. My competitors covet my website ranking but my clients covet my sound legal counsel. I deal directly with my clients and have a small, tireless staff of tax specialists.
You can put off your tax problem, or put us to work for you.