Executive MBA Programs

There are tax deductions out there for just about everyone imaginable. Unfortunately, many of them go underreported because few people are even aware of their existence, leaving a multitude of extremely valuable write offs going completely overlooked every year. The following tax deductions and credits remain some of the most commonly forgotten on return forms, but also some of the most lucrative as well. Take advantage of these whenever possible to ensure the most thorough and financially gratifying tax return possible.

1.  Fees for tax preparation and financial planning

The simple act of needing help to figure out taxes is actually a tax deduction in and of itself. Buying specialized software and books to get taxes in order qualify just as much as accounting services. Likewise, seeking any sort of financial planning advice may be counted as a deduction as well. However, this only counts for services charging a fee as opposed to a commission. Both of these count as itemized tax deductions and are subject to some restrictions. According to H&R Block, these are only allowed for the total cost and unreimbursed job-related costs that add up to more than 2% of an adjusted gross income.

Some tax preparation services would include the aforementioned H&R Block, Jackson-Hewitt, Liberty Tax Service, and personal CPAs. Financial planning services such as ING and Prudential count as well, provided taxpayers opt for a fee-based service instead of paying on commission. The regular Your Income Tax books by J.K. Lasser come out every year with updated information on tax laws, deductions, and procedures and come highly recommended by multiple sources. Numerous free tax preparation programs are available online, but those who pay for software such as Quicken may write off the expense. Individuals must find the reliable method of tax preparation that works best for their needs, however, so research is always highly recommended prior to making a real commitment.

2.  Safety equipment for work

Most taxpayers know of some of the basic work-related tax deductions, especially the ones related to individuals running their own small or home-based businesses. However, those who work for a company that do not provide certain allowances or expect employees to spring for some of their own expenses are able to write off what they paid for. This only counts if the equipment is not to be used outside of work, though, so anyone taking advantage of boots, goggles, helmets, and other safety equipment in personal or civilian life is disqualified from the deduction.

Military personnel may find this deduction of particular interest, as there are instances where they must pay out of pocket for certain safety gear they cannot use while off-duty. The same goes with some particular uniform expenses as well. As per H&R Block’s statements, these expenses do not have to be compulsory within a company’s guidelines. So long as they are necessities to working a job safely and effectively, never reimbursed, and never used outside of a work setting, they may be written off. A few other non-reimbursed job expenses not directly related to safety may be written off as well. Be sure to consult a tax specialist or written guide for a full listing of all possible work-related deductions.

3.  Exchange students, adoption, and foster care

Families or individuals hosting an exchange student may take off up to $50 for every month they stay. However, there are movements about that ask Congress to consider expanding the sum. Foster care and adoption expenses may also be written off for even more than that, though certain factors must be met. Adoption credits reduce some tax liabilities for up to $11, 650 no matter the circumstances. However, adoptive parents with a modified adjusted gross income between $174, 730.00 and $214, 730.00 may not reap the full benefit of either the adoption credit or the deduction. Those sporting a modified adjusted gross income above $214, 730.00 do not qualify.

Several factors have a direct effect on whether or not an individual or family may write off adoption expenses. Eligible children must be either under the age of 18 or physically and/or mentally incapable of self-care. Any special needs adoptees must be a citizen or resident of the United States at the time of adoption, the state government must have determined it too much of a risk for them to ever return to their birth parents, and the state government must also be involved in their adoption. This is also determined by a number of other elements, including ethnicity, age, minority status, family structure, medical conditions, and handicaps. Always make sure to review the somewhat complex ins and outs of exchange student, adoption, and foster care tax deductions prior to adding them to a form. Even if an individual or family never writes off any of the expenses incurred during adoption or foster care, doing either of these things are wonderful opportunities to give a child a loving home and wonderful opportunities not otherwise available in oppressive circumstances. Hosting an exchange student is a way to promote cultural exchange in the world and grants both host and guest with amazing learning experiences.

4.  Interest on savings bonds

Savings bonds used for college tuition or plopped into a Covedell or 529 college savings plan will not be taxed on interest. However, qualified individuals must fall below a certain modified adjusted gross income range to reap this benefit. Series EE and Series I United States Savings Bonds do not have to be listed as interest until spent, disposed of, or matured. H&R Block recommends reporting them yearly, however, should an individual expect to graduate into a higher tax bracket when it comes time to cash in their bonds. Savings bonds issued after 1989 do not count as income if the taxpayer meets certain requirements and spent money on certain qualified higher education expenditures. If purchased at a discount, the original issue discount might have to be reported as interest should the individual meet certain requirements. Parents do not qualify for a deduction on any bonds issued under their child’s or children’s name(s). Be sure to consult with a professional or other trusted resource to see what standards are and are not met when it comes to writing off savings bond interest.

5. Local and state income tax

Especially handy for individuals or families who purchased expensive necessities such as a house or a boat, 43 states allow for a deduction for state and local income taxes. Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming residents do not pay income tax. Some states, such as Florida, allow citizens to figure out a standard formula if they cannot figure out their exact expenditures for the year. Others, like New Hampshire and Tennessee, have very specific laws regarding income tax and its deduction qualification. The former only taxes income on unincorporated commercial activity – such as a business, farm, or rental – and income culled from dividends and interest. And the latter only taxes interest and dividend income as well. A few states even offer deductions on property taxes as well. Alternative Minimum Tax subjects may not qualify for these write offs. However, AMT participants may be allowed certain sales tax deductions in states with these particular refunds.

H&R Block hosts a highly informative listing of local and state income tax laws from across the United States. This is one of the best resources to gauge what regulations are in place where. Some individuals who live in a state with no income tax may still have to pay as such if they work in a state that does. Due to the overwhelming difference in state by state laws regarding interest, dividends, and other venues for income, it is a very wise idea to consult with a professional to ensure proper form submission prior to paying taxes.

6. Charitable contributions that aren’t cash

Most taxpayers are only aware of deductions relating to cash contributions to charity, all of which require receipts. However, write offs are available for almost any number of donations to nonprofits and other charitable organizations. For example, volunteers may deduct 14¢ for every mile driven for the benefit of a charity. New or used items may be taken off for the equivalent of their retail value provided they are in good condition. Donations of property, though, are subject to a few restrictions. They are generally written off for the equivalent of their fair market value, but must be reduced by ordinary income or short-term capital gain should the taxpayer elect to sell it instead. Time may not be deducted, though out-of-pocket expenditures can.

Donations exceeding $500 must be reported on Form 8283, and those exceeding $5,000 may require an appraisal. Anyone donating a vehicle such as a car, boat, or plane must deduct the lowest fair market value available, except in certain circumstances where it is permissible to write it off at a higher value. These include the nonprofit’s regular use of the transportation in question, its significant material improvement, or handing it over to one of the individuals or families directly served by the organization. When donating a car, plane, boat, or other vehicle, the charity will provide the necessary 1098-C Forms to be attached to a tax return.

For charity-sponsored events such as raffles and dinners, participants may write off the cost of what regular admission price would be if a nonprofit were not involved. Charitable contribution tax laws can prove rather daunting due to the amount of restrictions, exceptions, and regulations involved. Those who participate in multiple charitable services each year must look closely at what and how much they are able to write off.

7.  Health insurance premiums

Taxpayers who spend more than 7.5% of their adjusted gross income on healthcare and other medical-related expenditures are allowed to deduct the amount. This includes prescription costs, insurance, miscellaneous out-of-pocket spending, and travel to and from medical facilities. Pre-tax insurance premiums, however, are ineligible. When filing, make sure to itemize all health-related deductions to properly receive them.

Contributions made to an HSA can either be tax-deductable or considered pre-tax if part of an employer’s benefit plan. The account itself is not taxed, nor are any expenditures from it used to pay certain medical expenses. Individuals qualified for an HSA must also have a high deductible health plan (HDHP) that meets a given minimum subject to change on a yearly basis. They must also refrain from paying medical benefits until after the deductible has been completed, not be considered a dependent on anyone else’s tax return, hold no other health insurance plans, nor a participant in Medicare. It is possible to pay $2, 900 into an HSA every year for individuals and $5,800 for families. Seniors over the age of 55 may pay in an additional $900.

Those with FSAs may also be eligible for certain deductions as well. Contributions into these plans by either an employer or an employee are not subject to taxing. However, any corporate pay ins intended for long-term use are considered income and must be reported. For dependents, no more than $5,000 a year may be set aside. FSAs and HSAs alike are governed by a wide variety of laws, restrictions, and requirements. Make sure to consult a reliable professional or other source to ensure getting the best tax deduction possible.

8.  Owning a hybrid vehicle

In order to encourage car buyers to purchase environmentally-friendly cars, the United States government offers tax incentives for those electing to buy a hybrid. It is only available to the original owner, however, and does not extend to individuals, families, or businesses, or other organizations who buy them used. Even then, the credits are only available within a limited time frame. The IRS has a listing of credit amounts based on year purchased, make, and model of the vehicle. Eligible cars must have been bought or manufactured in 2005 or beyond to count towards a tax deduction.

9.  Higher education

Higher education – regardless of whether or not it is through a university, community college, or trade school – always costs a significant amount of money. Fortunately, there are a number of tax breaks available for students to defray some of their taxes. However, some restrictions do apply, including the inability to write off more than one credit for the same expense. There are still a number of possible deductions that most students will find extremely valuable, though, and most will generally qualify for at least one.

The Hope Credit may be claimed within the first 2 years of a college education and is equal to 100% of the first $1,200 and 50% of the next $1,200 for tuition and a few other different fees. Students may not receive this credit more than twice in their lifetime, nor can they earn more than $1,800 as a deduction. The Lifetime Learning Credit has no time limit and deducts up to 20% of annual tuition and fees. Students may claim a maximum of $2,000 per tax return with the LLC. A Tuition and Fees Deduction is available at $4,000 a student, and the Student Loan Interest Deduction allows for $2,500 off every return on any interest paid towards student loans. See the savings bond section of this article for more details on how their interest may be written off when used towards higher education.

Some of the more common higher education deductions are available on scholarships, grants, and Fullbright Grants. Only a certain percentage of these count as income, though some degree of a deduction is available. Be sure to talk with a financial professional to figure out how much must be paid and how much can be written off prior to filing a return. Financial Aid must be reported on Form 1040, 1040 EZ, or 1040A.

10.  Saving for Retirement

Individuals qualify for The Saver’s Credit must be over 18 years of age, not studying as a full-time student, not considered a dependent on anyone else’s tax return, and not possessive of an AGI over $26,500 for an individual, $53,000 if married and filing jointly, or $39, 750 for a head of a household. The Saver’s Credit allows for up to half of contributions to an IRA or other eligible retirement plan to qualify as a tax credit. Annual pay ins of up to $2,000 are eligible every year, and spouses who contribute are both allowed to claim individual deductions. Maximum credit amount percentage is determined by AGI and filing status. A full listing of what entitlement is available to whom is available via H&R Block.

With these frequently underrepresented and disregarded tax deductions, men and women across the United States can save themselves thousands of dollars every year that they never thought possible. Meet with a tax-deductable tax advisor to ensure qualifications in the event of understandable confusion. Doing so could mean a significant reduction in any tax returns filed this year.