Don't Miss These Deductions

More overlooked deductions on the menu this week.  For fun we’ll focus on what those of us inside public accounting call “above the line deductions”.   There are a number of reasons these are better than other kinds of deductions.  You can follow the link on above the line if you want more details -- the net impact is that they are hard to qualify for, but easy to take.  That’s because you don’t need to itemize to use them. While lots of people itemize, many people are better off with the standard deduction.  In particular young taxpayers often fall into the category of an easier return to file, but with fewer tax breaks.

One example of how starting out is a tougher time for taxpaying is your first job search.  Once you have a chosen profession, expenses for your job search can be deducted.  That’s not true for your first job hunt.  However -  moving to take your first job is not only deductible, but you can take it even if you don’t itemize.  The key qualification is that your new job is more than 50 miles away from your old home.  (You may need to read that a few times to get clear on what that means.)  Mileage deductions for moving have been changed.  If you moved in 2011 before July it’s 19 cents.  It went up to 23.5 cents for the remainder of the year.

If you own your own business and qualify for Medicare you get another deduction that doesn’t require you itemize.  (Accountants love these!) You can take the full premiums for Medicare Part B, Part D and any Medigap policy you use.  Unlike the typical medical expense deduction on Schedule A,  these premiums are deductible from the first dollar,  with no threshold to meet.  One important thing to check before you take this is, if you are covered under a spouse’s health insurance through an employer, then you can’t use this.  It’s only if you get your insurance through your business.

Members of the National Guard or military reserve who travel more than 100 miles and overnight to attend drills or meetings get to deduct the travel.  One again no itemizing required. (Yipee!) That said, I’m sure one reason this deduction gets overlooked is that it’s a little tricky to calculate.  You get to deduct your travel costs subject to federal maximums.  Follow the instructions carefully or better yet, call your accountant.  :-)

Often Overlooked Tax Deductions

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…