Nine Things You Didn’t Know Were Tax Deductions

Very few things are as painful as realizing that you forgot to include tax deductions that could have increased tax refunds on your return or lowered your tax bill. Here’s a look at some of the tax deductions that you should not overlook.

1. Sales Taxes or VAT

Did you know that you can deduct state income taxes or sales taxes off your federal income tax? In states that do not have their own income tax, this can be a huge money saver. The exciting thing is that even if you paid state taxes, sales tax breaks might be much better deals if made big purchases like a car or an engagement ring. However, it is vital that you itemize everything to get the deduction; nevertheless, remember there are all sorts of VAT complexities as this story from VATIT showcases.

2. Health Insurance Premiums

Medical bills and expenses can exceed budgets, and the IRS understands this; that is why it is sympathetic to insurance premium cost – in some cases, at least. In 2017-2018, deductible medical expenses needed to exceed 7.5% of your AGI or Adjusted Gross Income for them to be considered eligible as itemized deductions for the tax year. However, after the 2018 financial year, this threshold will increase to 10% of your AGI. It is worth noting that people who are self-employed and who take care of their own health insurance coverage can have their premium cost 100% deducted. It gets taken off the adjusted gross income instead of as itemized deductions.

3. Teachers and Tax Savings

It is that rare teacher who does not have to reach into his or her own pocket from time to time to purchase items needed in their classroom. While it may seem like no one really appreciate that generosity, the Internal Revenue Service does. It permits qualified K12 educators to deduct no more than 250 dollars for classroom materials. The amount is subtracted from the income, which means teachers can take advantage of it even if they do not itemize.

4. Charitable Gifts

A majority of taxpayers do understand that they can deduct goods or money given to charitable organizations – question though is, are you getting the most out of this benefit? The interesting thing is that out-of-pocket charitable work expenses also qualify. For instance, if you bake pies for a local charity fundraiser, it is possible to deduct the cost of all the ingredients used to make them. It is, therefore, wise that you itemize cost or save the receipts in case of an audit.

5. Paying Babysitters  

You should be able to deduct babysitter costs if you are paying her to watch your kids and you are volunteering to work without pay for any recognized charity. According to the Federal Tax Court, it is okay to list the costs of babysitting as a charitable contribution on returns; that is if, you have documented that while the sitter was performing their duties, you were somewhere else volunteering.

6. Lifetime Learning

 The tax code has several deductions that are geared towards college students; however, that does not mean that those who’ve already graduated college do not get tax breaks too! Lifetime Learning credits can provide scholars up to 2,000-dollars a year. This covers 20% of the initial 10,000-dollars they spend on education as they pursue higher education after high school. This will phase out as income levels increase, but does not discriminate age.

7. Unusual Business Expenses

If you have something that you use to benefit your enterprise and can document the reasons why you need it, you can have it deducted from your business income. Junkyard owners, for instance, could have the cost of cat food, which they use to encourage stray cats to live in the yard and keep rats and mice away, deducted. A bodybuilder recently got his plea to have the body oil he used in competitions deducted approved.

8. Looking for Work

Getting fired or losing your job for various reasons can be traumatic. Furthermore, the cost of finding another can be quite high. Before, if you were looking for a position within the same field, you had to itemize all your deductions, and if they exceeded 2% of the adjusted gross income, qualifying expenses over the threshold were eligible for deduction. While this may look like a high bar, the costs can add up really quickly – think about deducting the cost of printing resumes and the mileage put on the car driving to and from interviews. However, from the 2018-2019 financial year, these expenses will no longer be deductible. 

9. Self-employed Social Security

If you are self-employed, the bad thing is that you are required to pay 15.3% of your income for Medicare and social security taxes – the amounts ordinarily paid by both employers and employees. However, there is some consolation – you are allowed to deduct the 7.65% employer portion from income taxes.