Paying taxes can be tough enough to swallow, but unintentionally overpaying taxes can be downright painful.
You may be in holiday shopping mode now, but take one moment to give yourself the gift of saving money. You may qualify for these often overlooked tax deductions, so plan now to save later:
1. Tax Preparation Fees: The most obvious deduction is the cost of tax preparation when you file Form 1040 with Schedule A, Itemized Deductions attached. It's hard to believe this is an overlooked deduction.
If you paid a tax preparer last year, claim it. And though you can't deduct any free services or software, you can deduct those you actually paid for.
2. Financial Planning Fees: If you had to pay anyone to help you manage your income, you can deduct these expenses when you file Schedule A. The legal cost incurred to collect taxable alimony is deductible.
IRA trustee fees, if separately billed and paid from funds that are not inside the IRA, are deductible. If you paid a lawyer to prepare a trust or if you subscribe to an investment journal, these expenses may also be deductible.
3. Casualty or Theft Losses: If your property was damaged or destroyed due to natural disaster or was taken from you, you may deduct casualty and theft losses. However, you must reduce the loss by the amount of any insurance reimbursement or other reimbursement you expect to receive.
Fill our Form 4684, Casualties and Thefts, to figure the amount you may deduct, that exceeds 10% of your adjusted gross income (AGI).
4. Medical Purchases and Expenses: Contact lenses, eyeglasses and hearing devices, as well as breast pumps, childbirth classes, and certain prescription contraceptives can be deducted. If a dependent had inpatient treatment at a clinic for alcohol or drug abuse, the meals and lodging at the clinic during treatment are considered deductions.
If you are self-employed, you can deduct any premiums you pay out for health insurance. Your total medical expenses must be more than 10% of your adjusted gross income unless you are 65 or older and then the expenses must be more than 7.5% of your adjusted gross income. Keep the receipts of all of your qualified medical expenses, because they could add up to get you over the threshold.
5. Charitable Mileage: Most taxpayers know they can deduct donations made to charities, but some forget to record their mileage when volunteering. Mileage driven for volunteer work and for charitable organizations and functions is tax deductible. For 2015, you can deduct 14 cents per mile along with parking fees and any tolls you paid when you drive to volunteer locations.
Even if you don't drive to the charitable locations, you can still deduct your fees if you used public transportation. So don't miss this tax deduction, simply keep a log book of your odometer and the days you volunteered.
6. Certificates of Deposit (CDs) Withdrawal Penalties: If you withdrew money out of a CD early and were charged an early withdrawal penalty, you can deduct that on your taxes as an adjustment.
7. Job Related Expenses: For job seekers who can itemize, the IRS allows certain expenses to be deductible, such as placement agency fees, resume printing and mailing costs, legal fees related to doing and keeping your job.
If a taxpayer incurs legal expenses to fight a non-compete clause, for example, these expenses may be claimed as a job-related expense. I'll have more on this in an upcoming column.
8. Education Credits: Did you or your dependents take classes for your job? The Lifetime Learning Credit as well as the American Opportunity credit allow you to deduct education expenses. If you claim one of these credits, you can't also claim the tuition and fee deduction.
If you are unable to claim one of the credits, or if you get a better tax break, fees paid for certain times of education may be deductible on Schedule A.
9. Cell Phone Use: If you use your cell phone for business you may be able to deduct the depreciation of the phone itself as well as the associated costs.
10. Mortgage Points: An often overlooked tax break is for the point(s) paid to lower an interest rate on a home loan. If you are unsure if you paid out points, check the Form 1098 statement your lender should have given to you. Report this amount, along with the interest you paid on your mortgage, on Schedule A.
Keep in mind, individual circumstances always come into play when filing your federal tax return. The often-missed deductions listed here are just a few of many. For some of these deductions, there is a threshold and, for some you will need to itemize. Contact a tax pro to reduce your tax liability and getting the most out of your refund.
Why overpay, if you don't have to? Enjoy the holidays!