More than half of the people I know do their own taxes—including me. Thanks to the Internet and all the free tax-filing tools out there, filing taxes yourself isn’t as difficult as you might think. Whether you plan to do your own taxes or work with a CPA, here are eight commonly overlooked deductions and credits that can help you reduce what you will owe!
1. Not deducting state sales tax
Whether you live in a state that assesses state income tax or not, this common mistake could cost you hundreds. In fact, it’s a deduction that can actually save you more if your state doesn’t assess state income tax!
- What the IRS says: You can choose to deduct what you paid in state income tax or state sales tax.
- What to remember: You can claim one or the other, but not both, so calculate which gives you the bigger deduction before deciding.
- Helps: IRS Sales Tax Deduction Calculator
2. Not deducting charitable contributions
At this time, the IRS does not permit deductions of volunteer time. But what they do permit—and most people don't realize—is deductions of other costs associated with volunteering (as well as financial contributions to charitable causes).
- What the IRS says: You can deduct costs—such as postage for charitable mailings, ingredients you bought to make cookies for a charity bake sale, mileage spent driving to and from charitable functions, even the cost of stockpile items you donated for the local canned food drive.
- What to remember: You can deduct the FMV (fair market value) of stockpile items you donate for a charitable cause. If you have held the item for less than a full 12 months, you can deduct its retail cost. If you’ve held the item for more than 12 months, you can deduct its value at that time.
- Helps: 5 Key Ways Couponing Can Help You Save on Paying Taxes and KCL Tax Tips: How to Maximize Your Tax Deductions for Charitable Contributions
3. Not deducting your student loan interest paid by someone else
According to the IRS, if your parents are repaying your student loans, you’re the one who can deduct those repayments, not your folks.
- What the IRS says: For IRS purposes, whoever is responsible to repay the loan is the one who can deduct interest paid. That person—you if the loans are in your name— can deduct up to $2,500 in repaid student loan interest annually.
- What to remember: This will only work if your folks are not claiming you as a dependent on their tax returns.
- Helps: Student Loan Interest Deduction
4. Not deducting the costs of looking for a new job
If you’re unemployed, then believe it or not, the IRS wants to help you out! You’re allowed to deduct the costs of your job search, up to whatever does not exceed 2% of your adjusted gross income in that tax year.
- What the IRS says: You can deduct transportation expenses (mileage, tolls, parking meter costs, etc.), food and lodging costs for out of town interviews, taxi fares, fees you pay to an employment agency, advertising costs (resume printing, postage, business cards, etc.).
- What to remember: You must be able to demonstrate these expenses—either by keeping track of them throughout the year or reconstructing them at year-end.
- Helps: Job Search Expenses Can Be Tax Deductible
5. Not claiming your childcare tax credit
The childcare credit permits you to deduct a portion of what you paid in childcare while you were working. Depending on your tax bracket, each dollar of this (and any) credit can be worth between $0.25 and $1.00 worth of tax reduction!
- What the IRS says: You can take a credit for between 20-35 percent of what you pay for childcare (this depends on what your adjusted gross income is).
- What to remember: You can only deduct childcare expenses for children under the age of 13. You can use up to $3,000 in expenses for one child and up to $6,000 for two children as you calculate your credit.
- Helps: 10 Things to Know About the Child and Dependent Care Credit
6. Not claiming pay paid to your employer for jury duty
Practically no one enjoys jury duty. The one bright light is that, if you work for an employer, many employers continue to pay your full salary during the day(s) you are required to serve. However, they often will require you to turn off your jury duty pay in return for this. You can deduct this!
- What the IRS says: You can deduct the daily pay you receive for jury duty service if your employer required you to turn it over (in exchange for being paid your full regular salary).
- What to remember: Put the total amount you were paid for jury duty service on line 36 (titled "Other Deductions"). In the dotted line, write "Jury Pay."
- Helps: Jury Pay Given to an Employer
7. Not claiming your rightful Lifetime Learning Credit
Even if you have been out of school for some time, if you decide to return for higher education, you’re eligible to take the Lifetime Learning Credit for yourself (or a spouse if filing jointly).
- What the IRS says: You can take a credit of up to $2,000 per year (adjusted for your annual income).
- What to remember: You don't have to be pursuing a degree to take this credit. Even vocational school courses or classes you take in your retirement years can count.
- Helps: Lifetime Learning Credit
8. Not claiming your adjusted basis post reinvested dividends
Here, your fund can help you calculate your basis annually. If you reinvest your dividends, it’s important to recalculate your basis to ensure you’re taking the maximum deduction possible.
- What the IRS says: Funds must report the basis for each investor to the IRS, so you might as well report the right basis too and get the most deductions possible!
- What to remember: If you don't recalculate your basis, you’ll in essence pay double taxes on the reinvested dividends.
- Helps: Publication 17: Dividends and Other Distributions