Yesterday I put together a list of common federal income tax deductions, so today I thought I’d follow up with a list of commonly missed tax deductions and/or income adjustments that I dredged up from various corners of the internet. While there’s a bit of overlap with yesterday’s list, there are a number of new items, as well.
Non-cash charitable contributions. As I’ve noted in the past, you can get yourself a nice tax deduction by clearing out your house and donating all of that extra stuff to charity. Just be sure to get an itemized receipt, and if any individual item is worth more than $500, get it appraised. Note that, if you drive your car for charity work, you can also take a mileage deductions.
New points on refinancing. Any points that you pay when you refinance can be deducted (on a monthly basis) over the life of the new loan.
Old points on refinancing. All unamortized mortgage points left over prior years are deducted all at once if you end up refinancing your mortgage in any particular year.
Moving expenses to start your first job. While job hunting expense while search for your first job are not deductible, your moving expenses are, even if you don’t itemize. If you move more than 50 miles, you can deduct expense related to getting yourself and your stuff to your new location (including mileage).
State sales tax. This deduction makes the most sense for people that live in states without income taxes because you have to choose between the two (sales tax vs. state income tax) The good news is that you don’t have to save receipts all year long to get this one — you can opt to use a tabled value instead but, even if you do, you can still claim certain major expenditures (such as sales tax on a new car) as long as you have supporting documentation.
Health insurance premiums. Health insurance premiums, along with longterm care premiums, get added to your unreimbursed medical expenses and will be deducted to the extent that they exceed 7.5% of your AGI. But self-employed individuals can deduct 100% of their health insurance premiums if they’re not covered by an employer-paid plan. You don’t even have to itemize to take this one!
Child care credit. If you pay someone to take care of your kids such that you can work you might qualify for a tax credit. This is true even if you claim your childcare-related expenses through a tax-favored reimbursement account at work. The reason for this is that such accounts are capped at $5,000 while expenses up to $6,000 can qualify for the credit.
Educator expenses. Qualified educators can get a $250 “above the line” deduction for as much as $250 for the purchase of educational materials. Here again, you don’t have to itemize to take advantage of this one.
Student higher education expenses. If your AGI is less than $65k ($130k on a joint return), you can deduct as much as $4,000 for higher education expenses. And like self-employed health insurance premiums and educator expenses, you don’t have to itemize to take advantage of this. You should also check to see if you qualify for the Hope and/or Lifetime Learning credit, as these can end up being more valuable than the deduction.
Clean fuel credit. If you bought a new hybrid vehicle in 2007, you can get a conservation tax credit of $250-$1,000 and an additional fuel economy credit of $400-$2,400 (depending on the make and mpg rating). Unfortunately, the credits begin to phase out when an auto manufacturer sells it’s 60,000th hybrid. This is already happening for Toyota. I’m not sure about other manufacturers. (details)
Investment and tax expenses. Investment and tax planning expenses are deductible as miscellaneous itemized expenses to the extent that they exceed 2% of your AGI. Don’t forget about things like safe deposit box rentals, brokers fees, IRA custodial fees, investment publications, long distance calls to your broker, etc.
Retirement tax credit. Low and moderate-income earners can get a credit of as much as 50% of the first $2,000 that put into a retirement account. Yes, a credit, so it’s up to $1,000 off the top of your tax bill. Plus, you still get the tax deduction that would otherwise be associated with the contribution. Contribution to your 401(k), 403(b), SEP, Traditional, or Roth IRAs qualify, though your AGI has to be less than $25k to qualify ($50k for joint filers, and $37.5k for head of household).
I don’t remember the amount, but if you make below a certain level, I think you can take some of your education expenses as a CREDIT. As you know, credits are much better than deductions!
Comment by Ron@TheWisdomJournal — Jan 30th 2008 @ 8:33 am
Comment by nickel — Jan 30th 2008 @ 8:38 am
Thanks! You saved me $135 already. My tax program had the retirement tax credit available, but for whatever reason it did not present it to me by default.
Comment by Brandon — Jan 30th 2008 @ 9:02 am
I would love to hear from anyone who has taken the STATE SALES TAX deduction by calculating it, rather than taking the standard deduction… I have always been curious to see if it would work out in my favor, but have been unwilling to invest the time…
Comment by ChristianPF — Jan 30th 2008 @ 1:13 pm
Comment by nickel — Jan 30th 2008 @ 1:20 pm
OMG, I want to dance in the street (too bad it is rush hour!). I had did an estimated outlook of my taxes and was going to owe nearly $2000. The only deduction/credit that I had yet to add into the mix was the stuff from our college. Anyway, I ended up getting over $1900 in the Lifetime Learning Credit, and the deductions knocked out the rest putting us into a $265 refund. There will probably be some other deductions, but I can sleep peacefully knowing I don’t have to come up with that much for taxes.
Comment by Brandon — Jan 30th 2008 @ 5:17 pm
Thanks I didn’t know about the retirement tax credit and I’m sure that my AGI will be under $25,000. I dont know how much I contributed to my IRA in 2007, yet. But I don’t think that it was $2000, maybe $1200. Could I file my taxes, get the refund, contribute the remaining I need to reach $2000 for 2007 then refile with the adjusted amount?
Would this even be worth it?
Comment by Matt — Feb 1st 2008 @ 8:22 pm
Good list!
Comment by Money Blue Book — Feb 1st 2008 @ 11:25 pm
Brandon, I had a very similar experience to you - our tax due was sitting at roughly $1500. I knew I could deduct tuition and fees, but I was under the impression I could only use money we actually paid to the school and not loans we used to pay school, but I was wrong - loans can be included in the “money used to pay for school” total. We’re now sitting at a refund of over $400 (though I don’t know if we’ll actually get a refund as I remember reading something somewhere that said if the education-related credits/deductions is greater than the tax you owe, you will not receive the difference as a refund - either way, I’m happy we don’t have to pay the $1500). The IRS site had a relatively easy-to-understand info page about education-related deductions/credits.
Comment by Pamela — Feb 3rd 2008 @ 10:03 pm
Good point! Now, you gave me an idea to compute my tax refund. I’m not that long in this company, but that will be good because they cannot fool me with my taxes. I can complain to them the moment I found out that they’re fooling me. Thanks!
Comment by Rhei, writer Surefirewealth.com — Feb 4th 2008 @ 5:42 am
Great list. For the person looking for Tax Credits, think Children. Although, you will come out ahead in Taxes, your actual
expenses will be way higher. :O)
Comment by CD Rates Blog — Feb 6th 2008 @ 4:45 pm
That’s a really helpful list you’ve put together — I doubt most people would take the time to find out that they’re eligible for so many deductions.
Comment by EmilyStarbuck — Feb 6th 2008 @ 5:50 pm
“Old points on refinancing. All unamortized mortgage points left over prior years are deducted all at once if you end up refinancing your mortgage in any particular year.”
I would imagine it isn’t just refinancing the mortgage, but paying it off as well? Small difference, but worth noting, I’d imagine.
Comment by kurt — Mar 3rd 2008 @ 10:22 am