Even through we’re in the age of electronic tax preparation, there are still a lot of tax deductions that go under the radar.
I’ve compiled a list of what I consider the top 5 tax deductions that most people miss.
#1 – Non-Cash Distributions
Most people know that any cash donations can be deducted as a charitable contribution. However, any non-cash charitable contributions can be deducted as well. For example, a used sofa that you donate to Goodwill can be counted as a contribution. The catch to this donation though is that the sofa, or any other donated non-cash distribution, must be in good or better condition.
Additionally, the non-cash distribution must be included on the tax return at its market value. This can be calculated through several of the current tax preparation software packages or by taking it to a thrift store or the Salvation Army. Finally, you MUST have a receipt. No receipt = no tax deduction.
#2 – Points on Refinancing
With low interest rates, many people refinance their home. If you have refinanced, you may have paid points, in order to get the lower rate. These points can be amortized over the life of the new loan, with the annual depreciation amount being deductible each year.
Additionally, any unamortized points paid on old financing is fully deductible in the year of the new refinancing.
#3 – Health Insurance Premiums
If you are self-employed, you may deduct 100% of your health insurance premiums as long as you are not covered by any other employer-sponsored health plan. Furthermore, the premiums are deductible above the line, meaning that this amount is subtracted when calculating your adjusted gross income. Therefore, you do not need to meet the 7.5% medical expense floor, and you do not even need to itemize.
Additionally, for those who are not self-employed, you may still deduct your health insurance premiums, however you must reach the 7.5% medical expense floor in order for it to be a deductible expense.
#4 – Education Credits
The Lifetime Learning Credit both allow additional credits for those who are full-time students in higher education classes. The Hope Credit is only for the first 2 years of post-secondary education and can be worth up to $1,650 per student.
Additionally, the Lifetime Learning Credit can be for any level of college or graduate education and is potentially worth up to $2,000 per tax return.
#5 – Educator Expenses
If you are a qualified educator, you are able to deduct up to $250 above the line for the purchase of qualified materials. Items that are considered qualified materials include books, supplies, and computer equipment.
A qualified educator is a teacher, aide, instructor, or principal for Kindergarten through 12th grade. This deduction was set to end in 2006, but has been renewed until 2007.
Very few people use the words fun and taxes together… and don’t worry, I’m not one of them. I hope to make taxes easier to understand and less of a hassle. I am a CPA with a Master’s in Accounting, and I’ll do my best to help explain many of the tax options available today.