The Holiday season is about to come to an end, and that's a good and a bad thing. The family events start to slow down, and you start looking back at how much you really spent versus what you said you were going to spend. The next season that rolls around isn't necessarily spring, but it tends to be one that make most people hot.
That's right. Tax season is right around the corner, and filling out confusing forms to avoid over-paying the government is usually far from people's minds at the end of the year. But getting some of that money back through tax deductions may be what you need to start the process this year.
There are plenty of tax deductions available, and it's quite possible that you don't know what's available to you. It is best that you consult a qualified tax preparer or CPA for your specific situation, but here are 5 tax deductions you may have overlooked, but should take if you can.
1. Smaller Charitable Contributions
The question “What can I claim on my taxes?” can be met with the simplest and easiest deduction to pursue: charitable donations. Donating a large sum can get you a decent tax break, but you may not be aware that small donations can add up, too.
Most people who pay taxes realize they can deduct funds or goods they have provided a not-for-profit organization. However, let's say you help a charity with a fundraising event by selling cakes, clothes, etc. you can deduct the cost of the materials (or ingredients) used in those activities with your tax returns. It is best that you keep receipts and itemize the costs for auditing purposes.
The Motley Fool notes one caveat with claiming such donations on your taxes: “You're only allowed to deduct the fair value of used clothing or other goods, not what you initially paid for them.”
2. Child and Dependent Care Credit
The IRS defines the Child and Dependent Care Credit as “credit for the costs of care for a qualifying individual to allow you to work or look for work.” A tax credit is so much better than a tax deduction because it reduces your tax bill dollar for dollar. According to 2016 regulations, you are allowed to claim up to $3,000 of your money paid to childcare for one dependent, or up to $6,000 for two or more dependents.
If you pay your child care bills through a reimbursement account at work you may be overlooking this credit. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Up to $6,000 in care expenses can qualify for the credit, but the $5,000 from a tax favored account can't be used. So if you run the maximum $5,000 through a plan at work but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200 using the minimum 20 percent of the expenses. The credit percentage goes up for lower income households says Intuit TurboTax.
3. Earned Income Tax Credit
The Earned Income Tax Credit is available for those with low-to-moderate income. This may be the most overlooked deduction out there simply because many people assume they make too much money to qualify.
In many cases, this is not so. According to TurboTax’s information on Earned Income Tax Credit , “A married couple with three children and adjusted gross income of $53,267 or less could receive up to $6,242. An individual who earns $14,820 and has no children may receive up to $503.” There are many variations in between, and self-employment counts as well. However, 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it, according to the IRS. Most taxpayers that could aren’t aware that they qualify.
Most people don't know that you can receive tax deductions by furthering your education. There are two basic ways to leverage this tax deduction. The first is by taking advantage of the Lifetime Learning Credit. This tax deduction is available for secondary education students.
According to the IRS, students using the Lifetime Learning Credit may be eligible to receive up to $2,000 back on their tax return. The benefits begin to phase out when your income reaches the annual $55,000 to $65,000 range.
The other education deduction available is the American Opportunity Credit, which is similar to the Lifetime Learning Credit but can only be claimed for a total of four years (including claiming the previous Hope Scholarship Credit). You may be able to receive up to $2,500 back on your return with this credit. The benefits begin to phase out when your income reaches the annual $80,000 to $90,000 range.
8. Small Business Deductions
If you buy something that benefits your business, then it generally is a valid deduction, as long as you can justify it. The small business owner has a host of tax deductions available to her - if she knows about them.
For starters, you can deduct all kinds of office supplies that relate to your business. Pens, notebooks, sticky notes, and planners can all be written off as deductions, which can be substantial if you buy thousands of these products annually.
Buying furniture or computer equipment for your office can qualify you for deductions, either by claiming the expense all at once, or on a depreciation scale split over several years. Other expenses, like software subscriptions travel expenses, retirement planning, insurance premiums, and phone charges can all be claimed for tax deduction purposes.
When you do yours taxes this year, you may want to consider itemizing your deductions instead of automatically taking the standard deduction. Don’t leave money on the table. Chances are, many of the above deductions apply to your situation, so don’t miss out on a lower tax payment or a bigger refund.