If you prepare your tax returns yourself, either by hand or even with tax software, you are likely to end up paying more than you owe. No matter how much you know about tax law or how detailed your software may be, it is likely that you will miss or forget about certain deductions that could lower your tax bill. Even if you use an accountant or tax preparation service, it is a good idea to ask if you are entitled to the following deductions. No one knows more about your spending habits and expenses than you do, and it is ultimately your responsibility to investigate your eligibility for various deductions or credits under the law.
While some of these deductions are taken “above the line”, which means they reduce your total adjusted gross income on which you pay tax, others are only available if you itemize your deductions. It may be more work up front, but itemizing will almost always get you a larger deduction than if you take the standard flat deduction.
1. Medical Expenses
If your total medical expenses equal more than 7.5% (rising to 10% in 2013) of your adjusted gross income, you can deduct them. This includes health insurance, dental insurance and long-term care insurance premiums, medical equipment or medications taken pursuant to a doctor’s orders, and even some of the expenses incurred traveling to and from medical treatment.
2. Business-Related Expenses
The expenses you incur during a job search, such as printing resumes, career counseling and even travel to interviews are all deductible. If you have to move for a job (at least 50 miles away), you can deduct the reasonable cost of the move without having to itemize your exact expenses.
Self-employed individuals may also be able to take a deduction for a dedicated home office and other business purchases, as well as their entire health and dental insurance premium. These are above the line deductions and are not subject to the 7.5% threshold.
3. Mortgage Expenses
If you paid points on your home mortgage, you may be able to deduct the entire amount of the points on your original loan. If you refinance your mortgage, deducting for the points paid works differently. In that case, you must deduct the cost of the points over the loan’s entire term, the same amount each year.
4. Charitable Donations
Most people realize that if they give money to charity, that amount is deductible on their taxes. Property, household goods and even stocks and securities are deductible donations as well. You can even deduct part of your gas mileage to drive to and from a volunteer activity if you keep track of your distance. Always get a receipt for any donation you make, in case you are ever audited.
5. Higher Education
There are a number of tax credits and deductions available for people who are paying for higher education. Eligibility for the tax credits and the deductions generally depends on your income and filing status. The IRS limits taxpayers to one tax credit or deduction even if they are eligible for more than one. The IRS website or a tax specialist can help you determine if you are eligible for a deduction for higher education expenses.