The only thing worse than paying taxes is inadvertently paying more than you have to. But you can avoid this by being aware of common and commonly overlooked deductions and taking advantage of them. It’s best to be aware of these year-long, so you can plan to maximize your deductions and maintain good records. But even if the tax filing deadline is rapidly approaching, it still pays to know which deductions you may be eligible for this year and to dig up old receipts in order to claim them. See if you can reduce your taxes or increase your refund by claiming any of the following.
Overlooked Tax Deductions
1. Tax Preparation Fees, Schedule A, Line 22
You can actually deduct the cost of tax preparation on your Schedule A. If you paid taxes and used a credit or debit card to do so, you can also deduct convenience fees. This deduction obviously doesn’t apply if you used a free online tax preparation software or service, but you can write off paid services, such as TurboTax, H&R Block, or TaxACT.
2. Hobby Expenses, Schedule A, Line 28
Hobby expenses can be claimed as “other miscellaneous deductions.” While your hobby may not actually qualify you for small business tax deductions, you can deduct some expenses for it. However, you can only deduct as much income as you made. For instance, if your homegrown orchids netted you $300, but cost you $1,000, you can only deduct $300 in expenses. This is useful in order to recoup some money if you have a small business that has gone three years without a profit – at which point the IRS categorizes your operation as a hobby.
3. Personal Legal Bills, Schedule A, Line 28
Personal legal bills also fall into the “other miscellaneous deductions” category. You can deduct your lawyer bills as long as the lawyer is pursuing taxable income on your behalf. For example, if you’re going through a divorce and pay $1,000 to a lawyer who manages to secure alimony for you, you may deduct the $1,000. However, hiring a lawyer to gain custody is not deductible.
4. Educator Expenses, Form 1040, Line 23
If you worked at least 900 hours during the school year in a K-12 school as a teacher, aide, counselor, or administrator, and you personally purchased ordinary and necessary back-to-school supplies for the classroom, you can deduct up to $250 worth of these costs on your 1040. If you spent more than $250, you can deduct the remainder on Schedule A.
5. Charitable Mileage, Schedule A, Line 16
While it’s widely known that cash or goods donations to charities are tax-deductible, did you know that you can deduct the mileage you drive to volunteer? If you drive to your volunteer location or run any errands while volunteering, keep a log of your miles. You can deduct 14 cents per mile plus parking and toll fees. You can also deduct the fees you pay to use public transportation to go to and from the volunteer location.
6. Contributions to Fraternal Lodge Societies, Schedule A, Line 16
These are also considered charitable donations – up to a point. Dues that are specifically required of members are not deductible, but donations in excess of the required amount which are used for qualified charitable purposes (such as the Shriners hospital funds, or donating to local charities) are considered charitable donations. You can claim an amount up to a maximum of 30% of your adjusted gross income (AGI).
7. Losses Due to Theft or Destruction, Schedule A, line 20
If your car was hit by hailstones or you lost siding in a natural disaster and your car or homeowners’ insurance didn’t cover all the repairs, you can deduct the amount of the loss that you weren’t reimbursed. You must complete Form 4684 to determine the amount you can deduct.
8. Retirement Savings Contribution Credit, Form 1040, Line 50
If you contributed to your 401k, another retirement plan through work, or a traditional or Roth IRA, you may be eligible for the saver’s credit. The maximum credit for individual filers is $1,000 if you contribute at least $2,000 to a qualified retirement account. However, you must meet the income requirement for your filing status in order to qualify, and the lower your income, the greater the credit you will receive. For 2012, the income limits are $28,750, $43,125, and $57,500 if you file as single, head of household, or married filing jointly, respectively
9. Education Credits, Form 1040, Line 49
Did you take a knitting class or pick up some sign language or other life skills at your local community college this year? How about continuing education classes for your job? You may qualify for the Lifetime Learning Credit, which can net you up to $2,000 in tax credits. You can get this credit for classes taken by your spouse or any dependent as well, as long as you aren’t part of an employer tuition reimbursement program. The more well-known American Opportunity credit allows you to deduct up to $2,500 in expenses for undergraduate students, including you or your spouse. It is also a refundable credit – unlike the Lifetime Learning credit. In other words, you can get a portion of it refunded to you, even if you have no tax liability. If you claim either credit, you cannot also claim the tuition and fees deduction on your 1040.
10. Property Taxes on a Timeshare, Schedule A, Line 6
Frequently, your portion of the property taxes paid on a timeshare are included in your yearly maintenance fee. Check the statement to see if they are separated out. Additionally, if you sold a home or timeshare this year, any property taxes you had already paid should be on your settlement statement and can be deducted as well.
11. Last Year’s State Income Taxes, Schedule A, Line 5a
If you owed any state tax from 2011 and paid it in 2012, be sure to deduct it on your Schedule A, as it’s now a deduction for 2012.
12. Penalty on Early Withdrawal of Savings, Form 1040, Line 30
Did you cash in a certificate of deposit early this year? If you were charged a fee for doing so, you can deduct the penalty on your 1040.
13. Medicare B and D Premiums, Schedule A, Line 1
Medicare B and D premiums (which you sign up for voluntarily) can be deducted as a medical expense. Also, if you aren’t eligible for Social Security and you voluntarily enroll in Medicare A, you can deduct your Medicare A premiums.
14. Breastfeeding Equipment and Pumps, Schedule A, Line 1
An IRS ruling has declared breast pumps and other breastfeeding equipment to be medical equipment, which means its cost can be deducted on Schedule A. Since these pumps are often expensive, adding their cost to your other medical expense deductions can help get your total medical expenses over the 7.5% of AGI deduction requirement.
15. Financial Planning and Management Expenses, Schedule A, Line 23
If you subscribed to an investment newsletter, paid a financial advisor to review your retirement plan, had an attorney prepare a living will or trust, or otherwise spent money to manage your money, you can deduct these expenses.
While it may seem cumbersome to keep track of all these little deductions, they can add up to big savings on your taxes or help maximize your refund. To make filing your taxes easier, create a dedicated set of files on- or offline to record your expenses as you incur them year-long. And if you receive a refund, use it wisely – consider applying it to your emergency fund, credit card debt, or padding your retirement savings account.
Which of these are you utilizing and taking advantage of?
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