Tax season is right after the holidays. Rather than flood you with articles about divorce and the holidays, which are important, this article seeks to prepare you for the gift that keeps on taking right after the holidays. With money always tight, and especially tight after divorce, it’s important to squeeze all the juice out of every possible deduction you need, especially with the upcoming changes to alimony and taxes!
It’s that time again! The tax filing deadline is fast approaching. Before you file, take a look at this list of some commonly lost and forgotten tax deductions to make sure you’re not paying more than your fair share to Uncle Sam.If you haven’t filed yet, it’s time to get serious about gathering up your documents to prepare your return or request an extension of time to file.
Dig through your documents from last year, and let’s see what we can find. If you have any of these, you might be able to use it for a tax deduction.
1. The Sales Agreement for Your New Car (or Boat or Airplane)
You are allowed to deduct either the amounts you paid for state and local income tax or state and local sales tax. While the deduction for sales tax usually makes sense primarily for those who live in states that do not impose an income tax, in some cases your sales tax deduction may be higher.
The IRS has an online calculator to help residents of states that impose a sales tax calculate how much you can deduct based on the sales tax rates in your area and your income level. However, if you made a large purchase, such as a vehicle, boat or airplane, you can add the sales tax paid for those items to the amount calculated by the IRS.
The same goes for purchases of home building materials, so if you constructed a home or performed a major remodel, dig out those receipts.
2. Receipts for Charitable Contributions
Are you generous? Don’t miss out on these tax deductions. You probably won’t forget about large charitable gifts you made during the year by check or payroll deduction, but there’s been a big increase in online giving in the past few years and many people forget to save online receipts for tax time. Before you file, search your email inbox for keywords such as “gift” or “donation.” Even small donations here and there can add up to big tax savings at year end.
You are also allowed a deduction for miles driven for charity. Whether you’re delivering meals or driving to drop off donations, keep track of the miles you drive for charity.
3. Child and Dependent Care Expenses
Parents are often eligible for a variety of tax deductions. If your child or dependent is under the age of 13 and you paid for daycare expenses while you worked, or actively looked for work, you may be able to claim a tax credit for those expenses. The amount of the credit is a percentage of the daycare expenses you paid. The percentage depends on your Adjusted Gross Income.
Even if your child is in school during the day and you’re not paying for full-time daycare, you may be paying for before or after-school care or day camps during the summer months. Those expenses are eligible as well.
If you don’t know how much you paid for daycare during 2016, before you start combing through bank statements, ask your daycare provider. They can often print out a summary of the expenses you paid during the year.
You’ll also need your daycare provider’s name, address, and Social Security or tax ID number to complete Form 2441 for the credit.
4. Closing Documents for Purchases or Refinancing Your Home Mortgage
Whether you bought a home or just refinanced your existing mortgage, you’ll want to take a look at the closing statement before you file your return to take advantage of these tax deductions.
When you buy a house, you can deduct the points paid to obtain the mortgage in the year of purchase. When you refinance, you can deduct the points over the life of the loan. For example, you can deduct 1/30th of the points each year for a 30-year mortgage. The points are often referred to on the closing statement as loan origination fees.
When you pay off the loan, whether you sell the property or refinance again, you can deduct the remainder of the points not yet deducted.
While you’re reviewing the closing statement, look for any real estate taxes paid out of closing funds. You may be able to add these to the deductible real estate taxes reported on the Form 1098 Mortgage Interest Statement by your mortgage lender.
5. Job-Related Costs
If you are looking for work in the same area of work that you had in the past, you can deduct job-hunting expenses as miscellaneous itemized deductions.
Eligible costs include cab fares or parking fees, employment agency fees, fees for printing resumes, and the cost of postage. You can also deduct any food, transportation, and lodging expenses if you have to go out of town for a job interview.
If you pay for work-related expenses that aren’t reimbursed by your employer, you can deduct those expenses as miscellaneous itemized deductions as well. Eligible expenses may include license fees, continuing education, union dues, or uniforms.
6. Health Insurance Premiums
If you pay for your own health insurance, you may be eligible for a tax break. Normally, medical expenses have to exceed 10% of your Adjusted Gross Income for you to receive a benefit as an itemized deduction. If you are self-employed, you can deduct 100% of your premiums as an “above the line” deduction, meaning you don’t have to itemize to receive a benefit.
Self-employed people can also take an above-the-line deduction for any Long Term Care Insurance premiums paid.
7. Investment Expenses
If you itemize, you may be able to deduct fees for financial planning, investment advice, subscriptions to investment publications, and other costs related to your investments. You’ll need to exceed a percentage of your Adjusted Gross Income to get a tax benefit from miscellaneous itemized deductions, but you can add investment expenses to other miscellaneous expenses such as job-related costs, safe deposit box rental fees, and tax preparation fees. The more you find, the more likely it will be that you’ll be able to get a benefit for the deduction.
Are You Missing Important Documents to Support Tax Deductions?
Missing documents are not uncommon. Fortunately, most tax-related documents are easily replaceable.
If you lost a W-2, 1099, or K-1, call the issuer and request a replacement. Most banks, investment brokers, and student loan servicers now have 1099s available to download online.
If you are concerned you’ve forgotten something, the IRS is able to provide transcripts for prior year returns, account transcripts showing estimated payments made on your account, and Wage & Income transcripts showing all of the income reported to your Social Security number. You can request these transcripts by calling the IRS, or sign Form 2848 authorizing your CPA or tax preparer to request that information on your behalf.
When You Need More Time
If all else fails, you can request a six-month extension of time to file a complete and accurate return. Remember that the extension is only an extension of time to file, not an extension to pay. If you anticipate owing money, you may want to work with your tax advisor to estimate the amount due and pay it with your extension to avoid interest and underpayment penalties.
If you do request an extension, do yourself a favor and try to gather the information to file soon. October will be here before you know it and you don’t want to be scrambling to gather your information all over again in a few months.
Are you able to itemize tax deductions this year? Tell us in the comments below.
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