Paying taxes is tough to swallow, but unintentionally overpaying taxes can be downright painful. Liberty Tax Service wants to remind you of the sometimes overlooked IRS tax deductions individuals may qualify for. In order to avoid paying more income tax than you should, check out the most commonly missed deductions below.
- Tax Preparation Fees: From a company that offers tax preparation services and online services such as eSmart Tax, Liberty Online and DIY Tax, the most obvious deductible to mention is the ability to deduct the cost of tax preparation when you file Form 1040 with Schedule A Itemized Deductions attached. It’s hard to believe this is an overlooked deduction. If you paid a tax preparer last year, claim it. And though you can’t deduct any free services or software, you can deduct those you actually paid for.
- Financial Planning Fees: If you had to pay anyone to help you manage your income, you can deduct these expenses when you file Schedule A. The legal cost incurred to collect taxable alimony is deductible. IRA trustee fees, if separately billed and paid from funds that are not inside the IRA, are deductible. If you paid a lawyer to prepare a trust or if you subscribe to an investment journal these expenses may also be deductible.
- Casualty or Theft Losses: If your property was damaged or destroyed due to natural disaster or was taken from you with the intent to deprive you of it, you may deduct casualty and theft losses. However, you must reduce the loss by the amount of any insurance reimbursement or other reimbursement you expect to receive. Fill our Form 4684, Casualties and Thefts, to figure the amount you may deduct.
- Medical Purchases and Expenses: Contact lenses, eyeglasses and hearing devices, as well as breast pumps, child birth classes, and certain prescription contraceptives can be deducted. If a dependent had inpatient treatment at a clinic for alcohol or drug abuse, the meals and lodging at the clinic during treatment are considered deductions. If you are self-employed, you can deduct any premiums you pay out for health insurance. It’s important to note that your total medical expenses must be more than 10% of your adjusted gross income on Schedule A. Keep the receipts of all of your qualified medical expenses because they could add up to get you over the threshold.
- Charitable Mileage: Most taxpayers know they can deduct donations made to charities, but some forget to record their mileage when volunteering. Mileage driven for volunteer work and for charitable organizations and functions is tax deductible. For 2013, you can deduct 14 cents per mile along with parking fees and any tolls you paid when you drive to volunteer locations. Even if you don’t drive to the charitable locations, you can still deduct your fees if you used public transportation. So don’t miss this tax deduction, simply keep a log book of your odometer and the days you volunteered.
- Certificates of Deposit (CDs) Withdrawal Penalties: If you withdrew money out of a CD early and were charged a penalty, you can deduct that on your taxes. You should receive a Form 1099 OID showing the exact amount of the penalty you paid.
- Job Related Expenses: For job seekers who can itemize, the IRS allows certain expenses to be deductible, such as placement agency fees, resume printing and mailing costs, legal fees related to doing and keep your job. If a taxpayer incurs legal expenses to fight a non-compete clause, for example, these expenses may be claimed as a job-related expense.
- Education Credits: Did you or your dependents take classes for your job? The Lifetime Learning Credit as well as the American Opportunity credit allows you to deduct education expenses. If you claim one of the above mentioned credits you can’t claim the tuition and fee deduction on your taxes. If you are unable to claim one of these credits, or if you get a better tax break, fees paid for certain kinds of education may be deductible on Schedule A.
- Personal Cell Phone Use: If you use your cell phone for business there are several ways to deduct the depreciation of the phone itself as well as usage. Depending on how often you use it, if your employer reimburses you, or if you are self-employed, you may be able to report it as Profit or Loss from a Business on the Schedule C.
- Mortgage Points: An often overlooked tax break is for the point(s) paid to lower an interest rate on a home loan. If you are unsure if you paid out points, check the 1098 statement your lender should have given to you. Report this amount, along with the interest you paid on your mortgage, on Schedule A.
Keep in mind, individual circumstances always come into play when filing your federal tax return. The often-missed deductions listed here are just a few of many. For some of these deductions, there is a threshold, and for some you will need to itemize. Contact your Liberty Tax preparer for assistance in reducing your tax liability or getting the most out of your refund.