Lesser-known Write-offs May Help You Cut Your Tax Bill
Here are some lesser-known activities that may result in a tax break on your next return.
No one wants to leave any tax deduction on the table when filing on April 15 but with some 200 such credits and deductions available in the current tax code, not to mention the ever-changing rules, it’s easy to miss some breaks that may apply to your return.
Greg E. Papineau, CPA, with Biggs Kofford, urges clients to start tax planning as soon as the current return has been filed. “It’s important to consult your tax professional early and often,” he says. “We can’t take advantage of some of the available deductions if we don’t know what’s going on with our clients.”
This is not a deduction but rather a credit and according to the IRS is missed by millions of taxpayers. If you have mutual fund dividends that automatically reinvest in additional shares, each new purchase will increase your tax basis in the fund and reduce your taxable capital gain. If you forget to include the reinvested dividends in your basis it could result in double taxation.
Out-of-Pocket Charitable Deductions
These are not the larger charitable gifts you have made but costs incurred while doing charity work. They can include ingredients for food prepared for a soup kitchen, mileage to and from while doing charity work, stamps for charitable mailings etc.
Child Care Tax Credit
When making donations to organizations that also perform childcare, such as Early Connections Learning Centers, the YMCA or Catholic Charities, your donation may qualify for a 50 percent state tax credit but only monetary contributions will qualify.
Medicare Premiums for the Self-Employed
If you run your own business and qualify for Medicare, you can deduct the premiums for Part B and Part D plus the cost of any supplemental plans.
Lifetime Learning Credit
This credit can be used to offset the cost of higher education for you or your spouse. The activity is worth up to $2,000 a year based on 20 percent of $10,000 spent for any post-high school courses, including those at a vocational school or community college, that lead to new or improved job skills. This credit phases out above certain income levels so you should consult a tax professional before making a commitment.
If you are a frequent visitor to one of Colorado’s communities that offers gambling or enjoy heading to Las Vegas regularly, this tax tip is for you. Gamblers can write off their losses at the casinos provided they have winnings to deduct from them. You will need to keep meticulous records including your winnings and losses, dates you gambled and the type of gaming you engaged in.
Estate Tax on Income in Respect of a Decedent
Estate Tax on Income in Respect of a Decedent – If you have inherited an IRA, you may be able to take a tax deduction for the amount of estate tax paid on the IRA assets you have received.
American Opportunity Credit
This credit is good for all four years of college on qualified education expenses. You can claim 100 percent of the first $2,000 per student and 25 percent of the next $2,000 for a maximum of $2,500 per year. “These educational credits are great if you cannot claim your kids because you make too much money,” Papineau says.
Home for Business Use
There are certain expenses that can be deducted if you use part of your home to conduct business. To qualify, you must be able to claim that your home is a primary location for your business, a meeting place for clients or a storage facility for product or samples.
Investment Fees and Expenses
Certain fees paid to manage investments may be deductible including investment counseling, fees for software and online services to manage investments and transportation costs to and from your investment advisor’s office.
Pet Lover Deductions
In most cases, our four-legged friends cannot be used as a tax deduction but there are some exceptions to the rule if you can claim something along these lines. Dogs that are used to guard a business or cats used for pest control may qualify. If you live with show dogs or cats and the IRS considers your activity to be hobby income, some expenses related to that hobby may be deductible. And if you enjoy fostering you may be able to deduct expenses related to the care and feeding of those animals. Detailed records will be needed in this category.
Mortgage Insurance Premium Deduction
Most people know about the mortgage interest deduction but the mortgage insurance premium deduction is often missed, according to the IRS. So if you obtained a mortgage insurance policy in 2006 or later you may qualify for a deduction on the amount you paid toward the premium. This deduction decreases as income rises.
There are many other deductions available that might apply to very specific groups but taking advantage of even one of the offerings will help you keep more of your own money.