If you are like the thousands of Americans who will owe taxes or are having difficulty finalizing your returns this month, understanding some basic deductions accepted by the Internal Revenue Service (IRS) could have a significant impact on your bottom line. As you work to squeeze every last deduction to keep as much money as you can or get the highest possible return, the IRS wants their fair share of taxes. While there are exceptions – usually based on medical or living environment – the rules are pretty straightforward.
So here’s some helpful “Dos and Don’ts” courtesy of John Kasperek Co., Inc.
First, let’s start with the good news:
Charitable Deductions
Most people realize the monetary benefit of donating to their favorite charity. But often times the cost of volunteering can add up to a higher tax benefit. Any charitable supplies, materials or uniforms you purchase are deductible as an itemized charitable donation, and the IRS will also let you deduct the travel involved at 14 cents per mile.
Educational Credits
There are several credits available for individuals furthering their education. The lifetime learning credit is one of the more recent additions to the tax code that could provide some students (or their parents) up to $2,000, while the American Opportunity Tax credit is a dollar-for-dollar tax break of up to $2,500. The standard Tuition and Fees Deduction can take up to $4,000 off your taxable income and is available without having to itemize.
Childcare/Dependent Credits
The Child and Dependent Care Credit is taken by millions of Americans each year for day care expenses, but there is also a tax credit for child care costs during the summer including summer day camp costs. Additionally, if you have an adult dependent who needs care so that you can work, those expenses may qualify under this tax credit.
Home Purchase and Mortgage Refinance Points Deduction
It’s commonly known that when you buy a house, you get to deduct the points paid on the loan, but did you know that you might also qualify to deduct points on your refi? (Some restrictions apply.)
Retirement Tax Credits
You can get a tax savings for up to 50 percent of the first $2,000 you put into retirement accounts, good for up to a $1,000 tax credit through the Retirement Savings Contribution Credit. This could come from either an individual retirement account or a workplace plan.
Other commonly overlooked deductions may include but are not limited to: moving expenses, first job and job-hunting costs, medical expenses, and home energy-efficiency improvements.
Now, beware of these common mistakes:
Political Contributions
Political or lobbying contributions are never tax deductible under any circumstances.
Gym Memberships and Related Health Programs
Any weight loss, health program or gym membership expenses must be ordered by a doctor specifically for a diagnosed condition in order to be considered an acceptable deduction. (These must be itemized and other rules apply.)
Work Travel Expenses
Commuting to and from your regular place of work is not deductible, no matter the expense nor the mode of transportation.
Pets
No matter how much we love our furry friends, unless they are service animals no expenses including, food, supplies and veterinary visits are considered acceptable deductions.
Any Expenses Not Paid by You
If someone else pays your bills, neither you nor they are usually able to claim these expenses as deductions (some exceptions apply such as student loan payments). The IRS typically only considers your out of pocket expenses or those you incur on behalf of your spouse and dependents.
Other commonly mistaken non-deductible expenses may include but are not limited to: home alarms, private and home schooling expenses, and driver’s license fees. “Accounting Today” recently published their list of most outrageous tax deductions of 2017.
Please keep in mind, as with almost every rule there are exceptions and limitations and John Kasperek Co., Inc. strongly recommends you consult a tax professional to best determine how the law affects your unique situation. Best of luck this tax season!