Top 5 Items People Totally Forget To Deduct on Their Taxes
It is that time of the year again. But please, let me smarter than last year when we filed our tax returns without thinking about all the details. Smart is the new black after all, so we checked in with one of the countries smartest money-advisors: top asset manager Ken Mahoney. Between his market analysis on CNBC and book signing of latest bestselling book “Life on your terms”, we caught Ken just in time to give us his top 5 list of items people totally forget to tax deduct.
- State sales taxes
This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes, or state and local sales taxes.
For most citizens of income-tax states, the income tax deduction usually is a better deal. The IRS has tables for residents of states with sales taxes showing how much they can deduct. But the tables aren’t the last word.
If you purchased a vehicle, boat or airplane, 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.
The same goes for building materials you purchased for your home. These items are easy to overlook. The IRS even has a calculator to help you figure out the deduction, which varies by your state and income level.
- Out-of-pocket charitable contributions
It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for casseroles 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. If you drove your car for charity in 2016, remember to deduct 14 cents per mile.
- Child and Dependent Care Tax Credit
A tax credit is so much better than a tax deduction.Æit reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.
But it’s easy to overlook the child and dependent care credit if you pay your child care bills through a reimbursement account at work. Until a few years ago, the child care credit applied to no more than $4,800 of qualifying expenses. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work.
Now, however, up to $6,000 can qualify for the credit, but 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 for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200.
- Medical and Dental Expenses
If your medical and/or dental expenses are over 10% of your Adjusted Gross Income, or if you are over 65, they are 7.5%, over you AGI, it’s deductible.
- Job search Expense
Transportation, parking, tolls, preparing your resume, printing, agency fees are also all tax deductible.
The Top 5 Most Annoying Items We Wish We Could Deduct
- Donations to Non-Qualifying Charities, like friends and family
Giving to a good cause can help you out at tax time, but only if you’re making a donation to a qualified charity. Handing out cash to a friend or relative who’s struggling to find a job, for example, is certainly charitable. But it won’t help you score a tax break.
- Pet Care Expenses
Fluffy may seem like a member of the family. But that doesn’t mean you can claim him as a dependent or get a deduction for his day-to-day care.
- Commuting Expenses
While business-related travel expenses (including the cost of flights and hotel stays) may be deductible, ordinary commuting expenses are not. If you take a bus, taxi or subway to get to work each day, you can’t deduct those costs on your tax return as business expenses. You may be eligible for a deduction, however, if you’re paying to travel to a training session or conference held outside of your office.
- The Loss on the Sale of your home
A capital loss on the sale of your home, used by you as your personal residence at the time of sale is considered a nondeductible personal expense. You can only deduct losses on the sale of property used for business or investment purposes.
The only way you can obtain a deduction if you sell your home at a loss is to convert it to a rental property before you sell it. However, your deductible loss will be limited
- Home Improvement Expenses
Home improvement expenses generally aren’t deductible. One exception involves the renovations you make to a home office. Not everyone can take the home office deduction. But if you have a legitimate reason for claiming it, you may be able to deduct the cost of any upgrades you’ve made to your home office.
While you can’t qualify for a deduction for giving your kitchen a makeover or adding a new sunroom, these projects may raise your property value. If that happens, you can write off the additional property taxes that you have to pay.
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