It’s that time of the year again. Time to gather your receipts and documents in preparation for tax filing season. This year, perhaps more than ever, taking advantage of every tax deductible expense is not just legal — it’s smart. Waiting until the last minute can cost you big time. So, get started early.
Some 46 million Americans itemize deductions on our 1040s — claiming nearly $1 trillion worth of deductions. Another 85 million taxpayers claimed more than half a trillion dollars’ worth of standard deductions. Some of those who took the easy way out probably shortchanged themselves.
However, millions of taxpayers overpay their taxes every year by overlooking just one of the money-savers listed below. Here are 10 of the most-overlooked tax deductions. Claim them if you deserve them, and cut your tax bill to the bone.
1. State sales taxes. While every taxpayer has a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax.
2. Out-of-pocket charitable contributions. The big charitable donations or gifts you made during the year by check or payroll deductions are hard to overlook. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good works. If you drove your car for charity in 2008, remember to deduct the per mile limit.
3. Medical expenses. In addition to what you’ve spent on doctors, hospitals and medicine, other tax-deductible items include health insurance premiums, prescription eyeglasses and contact lenses, hearing aids, medical transportation, equipment for disabled people, and nursing home expenses.
4. Long-term care insurance premiums. Eight million Americans now own long-term care insurance policies and premiums may be tax deductible for individuals and self-employed. Many people still overlook this deduction for themselves or when assisting a parent with their own tax filings. And, note that States are increasingly allowing tax deductions or credits for the purchase of long-term care insurance.
5. Unreimbursed out-of-pocket job expenses. Tax-deductible expenses include vehicle expenses (other than commuting), travel expenses, uniforms, union dues and continuing education expenses.
6. Student loan interest paid by Mom and Dad. When parents pay back their child’s student loan, the IRS treats it as though the money was given to the child, who then paid the debt. So, a child who is not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.
7. Moving expense to take first job. Don’t forget that job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new locale.
8. Child-care credit. A credit is so much better than a deduction: It reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.
9. Refinancing points. When you buy a house, you get to deduct points paid to get your mortgage. However, when you refinance a mortgage, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year when it’s a 30 year mortgage. That’s $33 a year for each $1,000 of points you paid.
10. Jury pay paid to employer. Does your employer pays your full salary while you are doing your civic duty but ask that you turn over their jury fees to the company? The IRS demands that you report those fees as taxable income. You always have had the right to deduct the amount, so you weren’t taxed on money that simply passed through your hands. But now tax forms include a line dedicated to this deduction.
For information on the 2008 and new 2009 tax deductible limits and rules for long-term care insurance visit the Consumer Learning Center of the American Association for Long-Term Care Insurance and click on the box labeled Tax Deductible.