How many times have you completed your taxes, and then found out later that you could have gotten extra deductions if only you had paid just a little more attention, and you missed your opportunity for more cash back? It’s aggravating, and it doesn’t have to happen to you. It is always a good idea to sit down and review the possible deductions that you can take before you do your taxes, and while there are hundreds of possible tax deductions the IRS allows, here is a list of some commonly missed tax write offs so that you can be prepared not to forget them when tax season comes around again:
- Non-Cash Charitable Contributions
All contributions given to charity are tax deductible. What you may not know though, is that non-cash contributions are deductible as well. If you donate items such as clothing or appliances to goodwill, get a receipt from the charity and you can deduct the fair market value from your items. If you donated to a bin for the Salvation Army, and no receipt was given, make a list yourself of what was given, and take fair market value off of the items on your list. If you didn’t have cash at the time of contribution, and used a credit card instead, you can deduct the amount donated for the year you made the charge, not when the amount was actually paid off on your card. Many people miss this.
- Deduct Old Points on Refinancing
This is one deduction many people miss. All non-amortized points on an old refinancing are deducted in the year of a new refinancing. For example, let’s say you refinanced on June 1, 2006, and paid $2,400 in points. You refinanced again on June 1, 2007. You can deduct all the remaining points on the 2007 loan. That’s $2,280 plus the $50 you could deduct for January through May in 2007. Likewise, if you refinance the 2007 loan in 2008, you will be able to write off the remaining balance on your 2007 points.
- Get a Deduction for Being Efficient
Starting in 2006, taxpayers are able to receive a tax break for making their home more energy efficient. A 30% credit up to $2,000 can be taken for the cost of a solar water heater or photovoltaic equipment in your home. A 10% credit up to $500 for new insulation and heat reducing metal roofs, and up to $200 for more efficient windows. Unfortunately, you can’t deduct the labor costs. Also in this category you can take a deduction for buying a hybrid car which requires less fuel. See Does it Pay to Buy a Hybrid Car?
- Health Insurance Premiums
Any health insurance premiums you pay,including some long-term care premiums based on your age, are potentially deductible. Medical expenses have to exceed 7.5% of your adjusted gross income (AGI) before they give you any tax benefit.
- Deduct your Higher Education Bills
You can also take a deduction for qualified higher education expenses whether you itemize or not. If you adjusted gross income is $65,000 or less ($130,000 if filing jointly), you may take up to $4,000 in tuition and fees as a deduction. If your adjusted gross income is higher, $80,000 for single filers and $160,000 for joint, you can deduct up to $2,000 from your taxes.
- State Sales Tax
This is an easy one, but don’t overlook it. Any tax software program you buy will ask you to identify if you want to take the standard deduction for this item or items all your purchases. But personally, I find that the standard deduction is usually higher than itemizing anyway, as well as being faaaar less cumbersome.
Personal tax planning is important to maximizing your potential for a greater tax return or decreased tax liability during the year. Sometimes this is overlooked if you are doing well in your business. If you find that your time is more valuable building your business (I find that it is) then consider a tax professional. At the very least, utilize some personal tax planning software like TurboTax, or some other software. I have used TurboTax for the last couple years, and it has served its purpose so far. However, I believe that I will need to consult a professional for this year’s tax return.