If you have not yet gotten around to filing your 2016 taxes, below is a list of some of the most often overlooked tax write-offs. Use these tips to potentially cut your tax bill and keep more money in your pocket.
We’ll start with a Win Win favorite – charitable contributions:
Out-of-Pocket Charitable Contributions
It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for casseroles you regularly prepare for a nonprofit organization’s soup kitchen, for example, or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution.
State Tax Write-Offs
This write-off is primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes, or state and local sales taxes. For most citizens of income-tax states, the income tax deduction usually is a better deal. IRS has tables for residents of states with sales taxes showing how much they can deduct. But the tables aren’t the last word.
If you belong to a labor union and you pay dues every year, deduct them.
Student Loan Interest Paid by Parents
In the past, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law said that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. If Mom and Dad pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. So a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad.
First Jobs and New Jobs
While job-hunting expenses incurred while looking for your first job are not deductible, 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 23 cents per mile of the cost of getting yourself and your household goods to the new area, (plus parking fees and tolls) for driving your own vehicle.
Costs associated with looking for a new job in your current occupations are tax-deductible. This includes fees for resume preparation and employment of outplacement agencies.
Child and Dependent Care Tax Credit
It’s easy to overlook the child and dependent care credit if you pay your child care bills through a reimbursement account at work. This is a tax credit which will reduce your tax bill dollar for dollar, so do not miss it.
Earned Income Tax Credit (EITC)
Twenty five percent of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it, according to the IRS. Some people miss out on the credit because the rules can be complicated. Others simply aren’t aware that they qualify.
The EITC is a refundable tax credit – not a deduction – ranging from $506 to $6,269 for 2016. The credit is designed to supplement wages for low-to-moderate income workers. But the credit doesn’t just apply to lower income people. Tens of millions of individuals and families previously classified as “middle class” – including many white-collar workers – are now considered “low income” because they:
- lost a job
- took a pay cut
- or worked fewer hours last year
If you were eligible to claim the credit in the past but didn’t, you can file any time during the year to claim an EITC refund for up to three previous tax years.
State Tax Paid Last Spring
Did you owe taxes when you filed your 2015 state tax return in 2016? Then remember to include that amount with your state tax itemized deduction on your 2016 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.
Refinancing Mortgage Points
When you buy a house, you get to deduct points paid to obtain your mortgage all at one time. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid.
Cleaning and laundering services when traveling are deductible as long as they aren’t reimbursed by your employer.