Overlooked tax deductions and credits
Monday, February 21, 2011
I file our tax returns (that's my working method pictured below, and yes, the television remote is critical to the process), but the hubby contributes to the annual task. Every year as I slog through our 1040, he periodically stops by to look over my shoulder and chant "Deduct! Deduct! Deduct!"
He has a point. Deductions help cut your overall income level to a smaller taxable income amount. And less taxable income typically means less tax owed.
Even better than deductions are credits. This type of tax break lets you reduce your actual tax bill dollar for dollar. A few could get you a refund.
I'm not alone in my search, with hubby's vocal encouragement, for ways to trim our annual tax bill. But because the tax laws are continually tweaked, or because we all tend to get in a hurry to finish our taxes, sometimes a break or two gets overlooked.
Don't miss these tax breaks: To ensure that you (and the hubby and I!) don't miss any tax-cutting opportunities, check out my story on 10 overlooked tax breaks.
Making the list are both tax credits and tax deductions, for itemizers as well as ways to save directly on Form 1040 or, in a few cases, 1040A.
They include uncommon charitable gifts, the dependent care credit for day camp costs, mortgage refinancing loan points, medical expenses, certain home energy improvement costs, moving expenses, a credit for saving for retirement, education expenses, tax breaks for military reservist travel and job hunting costs. My story has details on each of these tax-cutting tax moves.
And as a bonus for readers of the ol' blog, here are five more:
A dependent parent
Every dependent you can claim gets you an extra exemption amount. On 2010 taxes, that's $3,650 per person. Kids are the most commonly claimed dependent, but older relatives also might qualify. And that includes your parents. So if you're taking care of Mom or Dad, be sure to see if you can claim the parental unit as a tax dependent.
Tax breaks for the disabled
Millions of people with disabilities may be paying more in taxes than necessary. Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return, simply by checking a box on Form 1040. And don't forget the credit for the elderly or disabled. It's available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability. The IRS has a roundup of tax benefits for disabled taxpayers.
Allsup, a nationwide provider of Social Security Disability Insurance (SSDI) representation and Medicare plan selection services, also examines tax credits and deductions that could help disabled taxpayers save money. "In fact, certain credits are refundable," says said Paul Gada, a tax attorney and personal financial planning director for the Allsup Disability Life Planning Center, "meaning you can get money back even if you owe no taxes."
Earned Income Tax Credit
You might have seen this tax credit referred to by a couple of acronyms: EITC or EIC. Regardless of what you call it, this tax break for lower- to middle-income individuals can put money back into your hands instead of Uncle Sam's.
The key here is the phrase "earned income." You have to make some, but not too much, money to get this tax break.
But the sucky economy might just have a tiny silver tax lining. Many people who were unemployed or under employed for part of the tax year now might qualify for this tax credit, which is one of those that could produce a refund. The exact EITC amount depends on your income, filing status and family size.
Collecting overpaid Social Security taxes
On the other end of the pay scale, we have folks who overpaid Social Security taxes. Did you work for two or more employers last year? If so, make sure you get back excess FICA (Federal Insurance Contributions Act) taxes you paid at your multiple jobs. Every employer takes out this tax amount that goes toward Social Security benefits via payroll withholding.
The 6.2 percent tax paid by you (except for 2011, when your portion is 4.2 percent thanks to the temporary payroll tax holiday) and matched by your employer is collected on up to the maximum Social Security wage base. In 2010, that was $106,800. That means that last year, the most you should have paid in FICA taxes was $6,621.60.
But if you have multiple jobs, your employers don't coordinate the tax withholdings. So your grand total of FICA taxes withheld could exceed that amount. If so, you can get it back as a tax credit when you file your tax return.
Cell phone business expenses
Do you use a cell phone for work? Good tax news! Mobile phones and other similar telecommunications equipment are no longer classified by the IRS as listed property. This means that the rules on deducting work-related costs of such devices are now less strict.
Beginning with the 2010 tax year, an employee may be able to deduct job-related cell phone etc. expenses even though the use was not for the convenience of the employer and wasn't required as a condition of employment. Even better, thanks to a provision int he Small Business Act passed last year, the demanding rules that the cell phone owner keep detailed logs of business vs. personal use is effectively gone.
Let's talk overlooked tax deductions: Do you know of more deductions that often get overlooked? Share with us via the comments section below.
You also can talk about overlooked deductions with me tomorrow afternoon as part of a Bankrate.com live online chat on the topic. We'll be talking taxes at 2 p.m. Eastern time on Tuesday, Feb. 22. Hope to see you there!
- Taking care of mom with some help from the tax code
- Put your payroll tax cut to work
- Payroll tax cut won't benefit all
- Tax credit for day camp costs
- Tax breaks for minimum wage workers
- Blog Action Day 2008: EITC
- Tax tips for 2011
- Daily Tax Tips for 2011 (January)
- Daily Tax Tips for 2011 (February)
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