The good news is that this tax season is getting off to a busy start. The bad news is I got off schedule and missed posting last week. Back on track now and starting to focus on the fun part of tax – deductions. First off, most apply only if you itemize, so the initially look at whether you’re better off with the standard deduction .
High on the overlooked list of deductions is the option to deduct sales tax paid for the year rather than income tax. The rough rule of thumb is that if you live in a state with income tax, you’re probably better off taking the income tax. Still it’s worth checking particularly if you’ve purchased big items or done some home remodeling. The IRS has a calculator that lets you set what you would get from sales tax for the year, so you can be sure that you’re making the right choice before you hit the send button on e-file. On a related note, if you paid state income tax in the spring, for last year’s return, it’s deductible this year. Make sure you don’t lose track of that.
Charitable deductions are common enough, but it’s often forgotten that out of pocket expenses associated with charitable work and driving for a charitable purpose are deductible. If your total giving for the charity exceeds $250 you’ll need an acknowledgement from them. Also remember non-cash donations require a special form.
Here’s one I picked up from kilplinger.com that’s easy to miss. If parents pay back a non-dependent child’s student loan, the IRS treats the money as if it was given to the child, who then paid the debt. Because the child is the debtor, it’s his deduction still, even though mom and dad paid the money. If the loan is made to mom and dad, the deduction is theirs alone.
If you pay for child care you should check the child care tax credit. People with an employer sponsored depend care account should consider if the savings from that is more than what they’d get from the credit. I won’t go into the full details, but if you have more than $5,000 in child care expenses you consider the credit over the spending account.
More next time…