Taxes are complicated - but everyone knows that. Changes: tax law, life, late and last minute rule, and more conspire to make it hard to prepare your taxes correctly and harder to know every tax benefit, deduction, or credit you might be entitled to take. Maybe you didn't know about it, skipped the question that led to it in your tax prep software, or you hired a preparer that missed it - no matter the reason, these deductions are worth taking advantage of, so much so, that you may want to consider amending your return if you have filed already. To simplify things for you a bit, here are five of my favorite deductions that are commonly missed:
Student loan interest - Parents often help their children so they can have a good life. One of the ways you might have done this is with a student loan for their education. Perhaps sweeter than their thanks, is the tax law that will reduce your taxes because you can claim up to $2,500 of student interest paid.
If your student has graduated, is still looking for a job in their field that pays better than the federal poverty level, and you are paying their student loan for them, they are considered to have made the payment and can claim the deduction on their return. Armed with this info, you can help them lower their taxes and put more money in their pocket.
Parents as dependents and their medical expenses - Claiming your parent, or other elderly relative, as a dependent is often forgotten. If you are providing more than half of your parent's (or other relative's) income, providing more than half the cost of their household, and their taxable income is less than $3,950, you should be able to claim them as a dependent. They don't even have to live in your house and Social Security benefits are not considered taxable income when it is their only source of income.
If their taxable income is too high, perhaps because of retirement benefits, you can still claim their medical expenses that you pay as long as the only reason they aren't a dependent is that their taxable income is over the limit. If this is the case, work with your parent or relative so you are paying prescription and doctor expenses and they are buying food to optimize your situation come tax time.
Charitable contributions of volunteers -America is a land of givers, overall donating more time and money and are more likely to help a stranger than other nations. Since giving is an inherent part of our culture, we often forget about the tax aspect of our donations. While your time isn't deductible, you can deduct the unreimbursed out of pocket expenses for the volunteer work. For example, if you made 15 dozen cookies for a school bake sale, you can deduct the cost of the supplies to make the cookies and get them ready for the sale, as well as 14 cents per mile to deliver the cookies. Some volunteers, such as scout leaders and paramedics, even have deductible uniform expenses. So keep track of your mileage, or other travel and out-of-pocket expenses for your volunteer work, they add up at tax time.
IRA contributions - If you contribute the maximum amount, $5,500 ($6,500 if age 50 or older) to a traditional IRA in 2014 you may be able to deduct the contribution from your taxable income. If your income is less than $60,000 you may also be eligible for a tax credit. Additionally, the money this account earns is tax-deferred until you withdraw.
Taxes paid - The income taxes you pay may be deductible. The state and local taxes you can claim are the greater of your income tax or the sales taxes paid during the year. If you claim the sales tax deduction, don't forget to add the sales taxes paid on a large ticket purchase, such as a car or a house (yes, some states tax the purchase of a house!). In addition, you can claim the real estate taxes paid on your home and other properties you own and any personal property taxes assessed on tangible personal property you own.
There are many overlooked deductions and credits available. Knowing which one applies to you can be daunting, but not claiming them leaves your money in the IRS' pocket. Check out Jackson Hewitt's Top 50 Overlooked Deductions or the IRS resource Credits & Deductions for Individuals, to see if you are taking advantage of every deduction you are entitled to. As Judge Learned Hand stated, "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury." Gregory v. Helvering (1935). Take Judge Hand's advice and pay the least tax possible and get the BIGGEST refund you are due!
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