The IRS is open for business. You probably know that by now between all of the commercials on television for the tax preparer companies and your mailbox being filled up with W-2’s, 1099’s, and 1098’s. Yet, in your rush to gather your information and file your return, have you overlooked deductions that could reduce the amount of tax you are paying?
These are the Top 5 Most Overlooked Deductions that I see in working with clients in getting their tax return prepared accurately:
1. Sales Tax Deduction – In Texas, and any other state that does not have a state income tax, you can deduct the sales tax you paid on EVERYTHING. If you purchased a vehicle, boat, or airplane, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state. The IRS even has an online calculator that shows how much residents of various states can deduct, based on their income and state and local sales tax rates.
2. Non-Cash Charitable Contributions – Do you really know what that bag of stuff is worth? It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub). But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for a school’s fund-raising mailing count as charitable contributions. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity in 2014, remember to deduct 14 cents per mile, plus parking and tolls paid, in your philanthropic journeys.
3. Refinancing Points – Interest rates are low. How low? As low as you are ever going to see them in your lifetime. You took our advice and refinanced your mortgage three years ago and now you are doing it again. Don’t forget to deduct the entire amount of the previous un-deducted points since your latest refinance makes them wholly deductible.
4. Teacher Expenses (I’ve hardly ever met a teacher who didn’t buy some supplies out of pocket.) The IRS Educator Expense deduction reduces your taxable income by $250 per educator for unreimbursed expenses. Educators, including K-12 teachers, teacher aides, instructors or principals, can get an above-the-line tax deduction for materials they buy for use in classrooms. Because it’s an above-the-line deduction, itemizing isn’t required for this deduction.
5. Financial planning and Investment expenses – Keeping your finances healthy also could land you a healthy tax deduction. Tax planning and investment expenses can be deducted if you itemize and the costs exceed 2% of your adjusted gross income. Investment expenses could include subscriptions to financial publications like The Wall Street Journal.
No matter how you prepare your return, being prepared and organized is large indicator of success in keeping your tax bill to a minimum.
Your homework this week is to get your 2011, 2012 and 2013 returns and make sure you took the Sales Tax Deduction on Schedule A. If you missed taking the deduction, don’t despair, give us a call and we can work with you to get those returns amended and your refund on its way to you.