Top 10 Tax Deductions Usually Overlooked

by Sam Burgoon on September 18, 2012

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Many people are unaware of the existence of several tax breaks that can help you save a significant amount of money. In addition, the IRS itself provides a list with the most common taxpayer blunders made on tax returns for you to avoid. In fact, there are many ways for you to get tax deductions by simply filling your tax forms properly. Be smart about your taxes and don’t overlook the following ten tax deductions.

1. State sales taxes

Taxpayers can claim this deduction, but it’s usually meant for states without income taxes. You can select between deducting local and state income taxes or local and state sales taxes. Most people are charged more for income tax than sales tax, which makes income tax deductions a much better deal.

If you would like to know which option is better for you, the IRS offers a table with available deduction information based on your state of residency.  You can even add sales taxes for purchases on items like boats or cars for substantial savings.

2. Out-of-pocket donations

Sizable charitable contributions shouldn’t be overlooked. Even little contributions can quickly add up, providing savings via write off costs while helping with charity. For example, if you spent money making meals for non-profit organizations, keep your receipts to claim tax deductions for expenses incurred.

3. Costs for job hunting

You are eligible to deduct job hunting costs as miscellaneous costs if you keep track of them. If your miscellaneous expenses are over two percent of your adjusted gross income, you can write them off. Here are some job hunting costs, which can be deducted:

• Transportation, food, and accommodation expenses count towards your tax deductions during a job search.

• Taxi fares.

• Fees spent on employment agencies.

• Business cards and resume print costs.

4. Travel costs for military reserve members

Military reserve or National Guard members can get a travel deduction for meeting and drills costs. Certain criteria to qualify for this deduction applies, which should be checked at the IRS site.

5. Self-employed Medicare premium deductions

People that own their businesses, after getting Medicare, may deduct healthcare costs paid for Medicare Part B and D, as well as other Medigap policies.

6. Credit for child-care

Credits are even better than deductions as the total tax per dollar is reduced. You can reduce the total income amount that is taxable with a credit for child care expenses, as an example. You may qualify for a child care tax credit of up to 35% depending on your tax bracket.

7. Jury payment provided to employer

Some employers pay workers full salaries while serving jury duty as long as their jury payment is given back to the company. The issue arises when the IRS wants you to pay taxes on your jury duty payments. If you gave jury duty payments back to your employer, simply deduct the amount on your tax return.

8. American Opportunity Tax Credit

You can get up to $2,500 in tax credits for education related expenses during a year. If the American Opportunity Tax credit is more than your tax liability, you may even get a refund.

9. Energy efficient home improvements

You can save money on taxes from energy efficient home improvements. This type of credit can provide you with 10% of improvements costs like new insulation and windows. However, the maximum amount that you can claim is $500 at the moment.

10. Credit for home buyers

Although this credit expired in 2010 for most people, some members of the uniformed armed and foreign services may still take advantage of a home-buyer’s credit. If you qualify, you can get a tax credit of up to $8,000 based on your income.

Check your finances to take full advantage of available deductions and credits for some of your expenses. Depending on the credit or deduction, you can save thousands of dollars per year on taxes. Just make sure to keep all documents and receipts handy while doing your tax filings as proof that you qualify for these deductions.

Photo: DonkeyHotey

About

Sam Burgoon is a social media marketing executive for several personal finance websites. He has a degree in business administration and marketing and has previously worked for companies like Bank of America and Oracle.