Tax season is here. There will soon be a rush to collect paperwork, fill out forms and find receipts, as people try to file taxes by the April 15th deadline. Happily, it’s easy to get the biggest tax refund with these little-known tax deductions and credits:
- Depreciation on Computers & Cell Phones
If the use of a computer and/or cell phone can be even remotely related to business, consider filing it on the tax return. Any time these electronics indirectly produce taxable income, the expense can be filed. Remember to keep the receipts from the initial computer purchase, software and any other upgrades done for work-related reasons.As for cell phones, keep all monthly bills. After looking at a few months' statements, it should be possible to estimate how much of the total cell phone use is attributed to business.
- Job Search Expenses
Expenses related to new job searches may deducted. This includes the cost of resumes, employment agency fees, phone and fax expenses, postage, and travel and transportation expenses—as long as the expenses are directly related to the job search and the positions sought were in the same line of work as the previous job. Additionally, there should not have been a significant gap between the end of the former job and the search for another.
- Tax Preparation Fees
Self-employed people can claim a lot of expenses on their tax forms, and one of the most overlooked is the tax preparation fees themselves. This includes tax software purchased and any tax-planning costs incurred for business purposes. Some of these fees can also reduce the taxes paid for Social Security and Medicare.
- Charitable Donations
People often forget donations of non-cash items like clothing and household goods are tax deductible. Some of these items may seem small, but these tax deductions can add up. Also, don’t forget about out-of-pocket expenses while traveling to volunteer at the local soup kitchen. Mileage and parking for travel directly related to charity work can be deducted.
- Investment Fees & Expenses Although it's forbidden to deduct direct costs related to buying or selling an investment, such as broker commissions, there are other tangential costs that you can look at. These deductions include investment-related books and subscriptions, investment advisory fees, safe deposit boxes, etc. Meals, entertainment and travel costs can also be tallied.
- Health Insurance Premiums
Both annual premiums and long-term care premiums may be deductible depending on age and medical expenses. If the addition of these health insurance costs and the amount quoted as "medical expenses" exceeds 10 percent of the adjusted gross income, there may be a tax benefit. Those who are self-employed and not covered by any employer-funded plan have it even better. The health insurance premiums do not have to exceed the 10 percent level, and do not have to be included in the itemized deductions section. These cost are taken on page 1 under Adjustments of the form 1040.
- Travel Expenses Every time there is travel involved, make sure to save receipts for transportation, meals, etc and collect business documents such as trade show pamphlets as proof that the trip was work-related. The deduction even applies when on a two-week trip visiting family across the country if three of those days were spent negotiating a business deal.
- Gambling Losses Reported gambling winnings can be matched with, at most, the same amount of gambling losses in the miscellaneous itemized deductions section. Needed as proof of the losses are the date, location and type of gamble as well as the wager amount.Big lottery buyers should keep all their ticket receipts and declare them if the amount lost is substantial.
- Work-Related Education Expenses Education costs can be deducted under two circumstances: If the employer requires continued education in order to maintain the present salary, and/or if the education improves or maintains aptitudes required in the present job.
- Moving Expenses
Moving expenses can be deducted if a new job is at least 50 miles away from the former home. This includes household possessions and even the cost of moving pets.
- Dependent Exemptions
Exemptions for dependents are $3,850 per dependent, but people often don’t take it. Why? Because they don’t realize their relative they have been supporting or their friend that’s been sleeping on the coach may be claimed as a “qualifying relative,” which may entitle them to a tax deduction.
- Child Care Credit
Children can be expensive. Working to pay for dependents under 13 years old may qualify for deductions up to $2,100. Even the cost of summer camp can be deducted.
Most of the above mentioned deductions must be at least 2 percent of the adjusted gross income (AGI). It is, of course, always important to make sure the correct tax breaks and credits are being reported. If anything is ever unclear, consult with a tax professional for clarification. Nobody wants the IRS man knocking at the door for tax fraud.
Al Wagner is president of Trinity Tax Consultants Inc.