No one wants to pay a nickel more than necessary in income tax.
Therefore, it behooves us all to claim every single write-off that’s available. But unfortunately, many of us just aren’t aware of a lot of tax breaks that exist. Here are a few that you don’t want to miss out on.
Who knew, for example, that there’s a line on tax forms for reporting a state income tax refund. If you don’t itemize deductions, your state tax refund is tax free. And even if you do itemize, a portion could still be tax free. The refund is subject to tax only to the extent that your prior year’s deduction of state income tax saved you money. If you would have itemized without the state tax deduction, then all of the state tax refund is deductible.
When it comes to charitable deductions, you certainly remember the checks you wrote. But what about the little expenses you have out-of-pocket when you engage in volunteer work? If you buy dog food for the ASPCA, or stamps to mail invitations to a fundraiser, those costs count as charitable contributions so hang on to the receipts. If the contribution is $250 or more, you will need a letter from the charity. Don’t forget, you can deduct 14 cents per mile if you’re using your car, as well as parking and tolls.
State sales tax can also be deducted. When you itemize, you can choose to deduct the state income tax or the state and local sales taxes you paid. Pick the one that saves you the most. If you are lucky enough to live in a state with no income tax, the choice is obvious.
Tax credits are even better, because they reduce your tax bill dollar for dollar. Be sure you get every credit you are entitled to. Childcare is a big one. You can get a credit of 20-35% of what you pay for childcare while working. If you have a childcare reimbursement account from your company, you pay for childcare with pre-tax money. Say, for example, you qualify for a 20% credit and you are in the 24% tax bracket. The money through reimbursement is free of federal taxes and the 7.65% payroll tax too. Up to $6000 qualifies for the credit, so if you take the maximum $5000 through reimbursement, you can still save a percentage of the remaining $1000.
For the self-employed, here’s a treat. If you’re traveling on business, you can add extra fees for baggage, flight changes and similar airline charges to your deductible travel expenses.
For more ways to save on your tax bill, please see:
20 Most-Overlooked Tax Breaks and Deductions | Kiplinger