In the rush to file taxes on time, Americans often miss opportunities to take deductions, which leaves them paying more than they actually owe. To get you started in the right direction, here are seven commonly overlooked tax deductions and credits.
State and local sales tax
While most people know they can deduct state and local income tax, they may not realize that they have the option of deducting their state and local sales tax instead. This is especially important if you live in one of nine states that does not have an income tax.
Child care expenses
Paying for child care while you are at work may make you eligible for the Child and Dependent Care Credit. There are a few caveats. For example, both parents must be working (unless one spouse is a full-time student or disabled) and the child care costs cannot be paid to a close relative, such as your spouse or parent.
Many out-of-pocket charitable donations are forgotten at tax time. Yet small donations to qualifying organizations can add up to significant savings. Keep your receipts throughout the year for donations of both cash and goods (clothing, etc.). Depending on the amount of your charitable donations, you may be required to file additional forms.
When you file an itemized tax return, you may be able to deduct some of your family’s medical and dental expenses. Many expenses qualify, such as doctor bills, medication costs and even transportation to medical facilities. Keep in mind that you can only deduct the amount by which your total medical expenses exceed 7.5 percent of your adjusted gross income.
Job search and relocation costs
There are a few twists to new job deductions. Job search expenses are not deductible when you are looking for your first job, but you can deduct your moving expenses once you find it. If you're in between jobs, you can deduct some of your job-hunting expenses as long as you are looking for work in the same field.
Self-employed individuals have a few ways to save. You can deduct half of your self-employment tax, your health insurance premiums and contributions to certain retirement plans such as SEP or SIMPLE IRAs. If you work from home you may also be able to deduct the cost of your home office.
Jury duty pay
If your employer continues to pay your salary while you are serving jury duty, you may have to give him your jury duty pay. Yet at tax time, you are still required to include the jury duty pay as income. If you gave your jury duty pay to your employer, you are allowed to take that amount as a deduction.
These are only a few examples of deductions you might be qualified to take. To make the most of your tax deductions, plan to file early and consider hiring a CPA who can help you understand how the current tax laws apply to your situation.