Five Overlooked Income Tax Deductions

 
Saving money doesn't just apply to shopping. As tax season is quickly approaching, now is the time to start thinking about how to maximize your tax deductions. By claiming as many deductions as possible, you'll minimize the amount of tax you have to pay and you can maximize your tax refund. 

Many people just claim the standard deduction, and that can sometimes be the smart choice, but it can also mean throwing money away. By itemizing deductions, you will probably reduce your tax burden and increase your tax refund. It certainly helps to be organized throughout the year, but when you know what you're looking for, it's easy enough to gather what you need. After you see how much of a deal you can get on your taxes with deductions, you'll probably want to immediately start a financial filing system for next year's deductions.

A service like Turbo Tax makes the deduction process pretty easy by guiding you through potential deductions with a series of questions. Turbo Tax Deluxe, especially, searches through hundreds of deductions and credits to help get you your maximum refund. Although this will likely catch the majority of deductions you qualify for, it's also a good idea to go into the filing process knowing about some of the most overlooked tax deductions. You never want to file without claiming all the tax write-offs you deserve. 

Here are 5 overlooked income tax deductions to be aware of.

1. Job Hunting Expenses

Anyone who is unemployed and looking for work can and should claim the cost associated with job hunting. It's important to document and keep track of receipts incurred during the job hunt. You can only deduct job hunting costs if you're looking for the same kind of work as your most recent job. Related expenses you can claim are:
  • transportation expenses - cab fares, parking, tolls, and 54 cents per mile driven
  • food and lodging if traveling in search for work
  • printing costs for resumes, business cards, advertising, etc.
  • employment agency fees

A similar deduction that is also frequently overlooked is moving expenses for a first job. When moving at least 50 miles away from home to take your first job, you can deduct mileage, parking, and tolls.

2. Child Care Expenses

This is technically a credit and not a deduction, but these are even more important to claim if you qualify. The Child and Dependent Care Credit gives you back 20-35% (up to $6,000) of what you paid in child care costs while working. However, sometimes it makes more sense not to file for this credit. If your employer offers a reimbursement account that lets you pay for child-care in a tax-free way, that's generally a better deal. Since reimbursement accounts are capped at $5,000, though, you can and should file for the $1,000 difference. There are also other tax credits and deductions for parents. Kids can be expensive, but they do come with quite a few tax breaks, so make sure you're claiming as many as you can.

3. State Tax

If you paid state tax last year, it's important to remember to deduct it this year, along with the amount of state tax withheld from your checks. You will also always have to choose between deducting state and local income tax versus state and local sales tax. This deduction varies depending on the state you live in. For most states with an income tax, that is the better choice. If you've made a big purchase in the past year, though, the sales tax might be the way to go. Sales tax from a purchase of a vehicle, boat, airplane, or home building materials should always be added in. The IRS has a calculator to help you figure out this deduction. 

4. Charitable Contributions

It's easy to remember any big checks you wrote to a charitable cause, but don't forget about the little contributions. The little things you've done to help out a cause add up. Checks you write certainly count, but don't forget about:
  • parking, tolls, and 14 cents per mile for any driving you did for a charitable purpose
  • cost of ingredients for food made for a soup kitchen or for a similar charitable cause
  • donation of property (land, artwork, vehicles, etc.)
  • donation of household items
  • cost of materials incurred while volunteering (uniform, materials, mailing costs, etc.)
Giving feels good and makes a real difference in the lives of others, but it can also help you out at tax time.

5. Student Loan Interest Paid by Parents

You can and should always deduct the amount of interest paid on a student loan, but now you can also deduct this interest when it is paid by your parent. Up to $2,500 of student loan interested paid by your mom and dad can be deducted by you. Even if your parents have been paying off your loan directly, the IRS treats this as though they had given the money to you and you then made payments on the loan.
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