ICFE eNEWS #14-07 - Mar 28th 2014
10 Credits And Deductions Commonly Missed
I recently watched a couple of TV shows where people used metal
detectors to uncover "buried treasure." One show focused on buried
meteorites, the other on Civil War artifacts. Although many of the
unearthed "treasures" were not valuable, it only took one profitable
"hit" to keep the "prospectors" motivated enough to continue searching.
Reading this article by CPA Stacy Johnson, CEO and Editor of
MoneyTalkNews, can be similar to that experience. He shares ten common
credits and deductions that are often missed while preparing our taxes.
You may already know all ten, but if there is just one that you are not
familiar with, you may have discovered "buried treasure" that will save
The IRS has a
handy calculator to see how much you can deduct.
- Charity. You can deduct the value of any cash or property donations
to a legitimate charity, although you'll need receipts. That's common
knowledge, but here's something that isn't: Volunteers can deduct 14
cents per mile traveled to and from charity work, plus out-of-pocket
expenses from that work, including supplies and required uniforms. (Your
time isn't deductible.) For more details, check out Publication 526, the
IRS Guide to Charitable Contributions.
- Child care. The Child and Dependent Care Credit helps cover the cost
of day care (20 to 35 percent, depending on income), but many people
aren't aware it also extends to the cost of summer day camps (but not
overnight-stay camps), adult dependent care and even housekeeping.
Restrictions apply, but it's worth checking out. For this one, you'll
want to look to
IRS Publication 503.
And remember, a credit is worth a lot more than a deduction, because a
credit reduces your taxes dollar for dollar, whereas a deduction only
reduces the income you're taxed on. For example, if you're in the 25
percent tax bracket, a dollar of deduction reduces your tax by 25 cents.
But a dollar of credit reduces your taxes by a full dollar.
- Retirement. Retirement contributions often qualify for a deduction
(which reduces your taxable income) but they can also net you a credit
if you make under $27,750 a year for single taxpayers and $55,500 for
It's called the Retirement Savings Contribution Credit or Savers Credit,
and if you made contributions to an IRA, 401(k) or other qualified
retirement plan, you may be eligible for a credit of up to $1,000 single
or $2,000 joint. The less income you make, the bigger the credit.
If you've moved at least 50 miles for a job, you may be able to deduct
moving expenses. But if you're actively seeking work, many other costs
are deductible, too - employment agency fees, resume preparation,
business cards, travel (at 56.5 cents per mile) and other expenses.
But there are catches. It has to be for work in the same field, and it's
only for those who itemize. To see what you can qualify for, you can
check Publication 521. But a quick way to determine if your moving
expenses will be deductible is to use
this IRS worksheet.
- School. Knowledge is power and lower taxes. The American Opportunity
Credit is the best way to lower taxes because it's partially refundable,
meaning you can theoretically get more money back than you paid in.
You'll get the credit for the full amount of the first $2,000 spent on
qualifying college expenses and 25 percent of the next $2,000, so the
max is $2,500. Income limits apply. It starts phasing out for single
taxpayers with a modified adjusted gross income of more than $80,000,
$160,000 for joint filers.
The American Opportunity Credit is only available for the first four
years of college. If you go beyond that, look to the Lifetime Learning
Credit. It's up to $2,000 -- 20 percent of the first $10,000 in
qualifying expenses - and is available for as many years as you qualify.
It also includes graduate classes and job training courses.
Income limits apply to this one as well. For 2013, the credit starts
phasing out for single taxpayers with more than $53,000 of modified
adjusted gross income, and joint filers with $107,000 of MAGI.
Make too much to qualify for either credit? You can still deduct
qualified expenses under the Tuition and Fees Deduction. It can reduce
your taxes by up to $4,000. Read about all the education credits and
But remember, you can't take them all, just the one
that will give you the biggest write-off.
- Military service. If you're in the Reserves and traveled more than
100 miles last year for training or other duties, you can deduct hotel
stays, half your meal costs, and travel expenses (parking, tolls,
mileage at 56.5 cents per mile). No need to itemize. The IRS has other
tax tips for service members - for instance, pay from any month you
spent in a combat zone is not taxable.
- Medical expenses. Because of income limitations, medical expenses are
tough to deduct. But do the math if you had big bills last year.
Expenses totaling more than 10 percent of your adjusted gross income
(7.5 percent if you were born before 1949) will reduce your taxable
There are a lot of qualifying medical expenses to include, like
insurance premiums (including what you pay into an employer plan) and
travel to and from treatments.
The self-employed can deduct their whole insurance premium as long as
they made a net profit for the year and aren't covered by another
employer (including through your spouse).
- Energy efficiency. For several years now, there have been some juicy
credits for installing qualifying energy savers, like new windows and
insulation. But it looks like tax year 2013 will be the last year. You
get a credit of 10 percent of the cost of certain energy-saving
improvements for 2013, but it has a lifetime limit of $500, and only
$200 of that can be for windows. Read more at
this page of the IRS site.
There's still one great credit left, however. If you installed something
that uses alternative energy, like a solar water heater, geothermal heat
pump or wind turbines, you can get a credit of up to 30 percent of the
cost. That's good until 2016.
- Baggage fees. If you're self-employed and travel for business, you
know that your travel expenses are deductible. But if you got nailed for
a baggage fee at the ticket counter last year, that's deductible too.
- State sales taxes. You may have heard that the deduction for state
sales taxes was slated to expire. It was, but was reinstated. You're
allowed to deduct either state sales taxes or state income taxes,
whichever helps most. If you're lucky enough to live in a state without
state income taxes, easy decision: Deduct your sales taxes. But even if
you do pay state income tax, you should still compare, especially if you
bought a big-ticket item last year, like a car.
Source: MoneyTalkNews.com, Stacy Johnson, February 26, 2014. To sign up
for Stacy's Newsletter, go to
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023
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