6 Commonly Overlooked Ways to Reduce Your Tax Bill
Oftentimes, people will forego potentially valuable tax breaks because they would rather pay a little more than risk mistakes resulting in penalties from the IRS. Some may feel the tax code to be too complicated and would rather file their taxes expeditiously and avoid going for the tax breaks to which they’re legally entitled. We say: When in doubt, go find out!
This tax season, we recommend that you spend some time reviewing your business activities and records to make sure you are not overlooking significant tax breaks. While some need to be itemized, others can be claimed by anyone who qualifies. Here are six commonly overlooked deductions:
1. Non-cash charitable contributions. You can deduct the value of items you donate to charity. This also can include out-of-pocket expenses for volunteering with a qualified charity, such as the cost of supplies or equipment rental. Even mileage for charitable activities can be deducted.
2. Home office expense. Many home businesses miss this deduction because they believe it is too complicated and presents a possible audit risk. Additionally, more and more people work from home and need dedicated home office or shop space. New rules in this area simplify the reporting and make it easier to take.
3. Educator deduction. Every qualified teacher is entitled to reimbursement of out-of-pocket classroom or teaching aid expenses. This deduction is available even if you do not itemize as a business.
4. Miscellaneous deductions. Miscellaneous deductions are often overlooked because in total they must exceed 2 percent of your adjusted gross income. But there are so many miscellaneous deductions available that they can add up fast. They include things like professional fees (such as tax preparation), uniform costs, unreimbursed employee expenses, union dues, job hunting expenses, casualty losses, theft losses, safety deposit box fees, and hobby expenses. Again, when in doubt, go find out!
5. Child and Dependent Care Credit. Many taxpayers can get reimbursed for as much as $5,000 in child care expenses through their employer’s benefit package. However, they often forget they can offset an additional $1,000 in qualified child care expenses as an additional credit on their tax returns.
6. Correct cost of investments. Investment companies often incorrectly report your investment costs on 1099 forms when you reinvest dividends. You may save money by double-checking your 1099s and correcting any errors that understate your investment costs. Work closely with your financial planner and be sure to discuss accuracy in correct costs of investments with them.
Something to keep in mind: With a little bit of knowledge and good record keeping, you can take advantage of various legal tax incentives the government offers to significantly reduce your tax burden. Just remember that if you’re qualified for, but not claiming any of these tax deductions, you’re actually subsidizing the government, which is perfectly legal too!