Are You Overlooking These Tax Write-Offs?
Reducing your taxes is a top priority for most people who want to ensure they pay as little as possible or get back as big of a refund as they can. One way to reduce your tax liability is to look for write-offs so you can get all of the different deductions and credits that you are eligible for.
Unfortunately, some common deductions get missed every year by tax filers. This is why it is so important to do your research, explore all of your possible expenses and develop a full understanding of all of the possible ways to lower your income tax liability so that when you go to file taxes or fill out an online tax return, you’re all set to save.
The experts at Investopedia detailed some of the tax write-offs that people are often unaware of or forget to take, including:
- Deductions for disability insurance. If you buy disability insurance coverage, you may wish to deduct the premiums that you pay for the insurance coverage. However, you should be aware that if you deduct the premiums, benefits from the policy become tax deductible while if you do not deduct the premiums, you pay no taxes on the benefits if you become disabled.
- Health savings accounts. Health savings accounts allow you to purchase a high deductible health plan that provides catastrophic coverage and to set aside money pre-tax to meet basic health expenses. All money put into an HSA to use for your health expenses is tax deductible, even if you do not itemize your income taxes.
- Life insurance premiums. Life insurance premiums can generally be deducted as a business-related expense if you are self employed.
While this a great start for some of the biggest deduction opportunities that people tend to miss, there are plenty more write-offs that people forget to include. Some of the other deductions and write-offs that are commonly forgotten include:
- A deduction for state sales tax. You have the choice between deducting state sales tax or state income tax from your federal returns. If you live in one of the states that do not have an income tax, it is especially important that you remember to take your deduction for state sales tax. You can determine how much to take either by using a standard formula based on your income or by keeping receipts to prove how much you actually spend in sales tax over the course of the year.
- Charitable deductions that you make out-of-pocket. While most people remember to deduct big contributions they make, you should also deduct small charitable donations made over the course of the year as well. According to Kiplinger, many people overlook their charitable deductions at tax time. For example, if you buy ingredients to make food for a nonprofit soup kitchen or if you make a purchase at a fundraising event, these costs can be deducted from your income taxes as well. Just be sure to keep your receipts.
- Student loan interest that your parents pay. If your parents are paying back your loan, this is treated as a gift and it is looked upon by the IRS as you paying the debt. If you aren’t claimed as a dependent on your parent’s tax return, you can deduct up to $2,500 in student loan interest each year. You can deduct this money even if you don’t itemize (although the parents who pay for the student loans are not eligible to deduct the money).
- The costs of looking for a job. Any expenses that you pay out such as printing resumes can be deducted provided that your total miscellaneous expenses exceed two percent of your adjusted gross income.
- Moving expenses if you move to take your first job. In order to qualify for a deduction for the cost of moving, the job needs to be located at least fifty miles from the home that you lived in before. You can deduct mileage and other costs associated with the move.
- Deduction of Medicare premiums if you are self-employed. You can deduct the cost of paying for Medicare Part B and Medicare Part D as well as the cost of any supplemental Medicare policies that you buy if you are self employed and continue to run your business after you have become eligible for Medicare.
These are just a few of the many deductions and write-offs that are available to you that you should make sure you are taking if you are eligible. Understanding all of the different tax deductions is important to ensure you don’t pay more than you need to in income tax.
Jim Rosenthal is a certified public accountant (CPA) that assists individuals and small business in preparing their tax returns nad getting every tax deduction possible. Jim also specializes in helping small business owners that have tax problems and issues with the IRS (such as setting up payment plans for back taxes and things of that nature).