Computer tax software helps preparers find deductions more easily than in the past, but many people still miss out on commonly overlooked deductions. To help you get down into a lower tax bracket and save more money on taxes, we take a look at a few tax breaks people often miss in the form of tax credits or deductions.
Did you know that any time you donate items in good condition to thrift stores you are entitled to record a small amount of money to deduct from your taxable income? Most people don’t claim charitable donations yet donate bags of clothes or boxes of books regularly to outfits like Goodwill or the Salvation Army.
Skip the drop boxes and take a few minutes to go inside to ask for a receipt. File the receipts along with other tax documents throughout the year to make claiming the donations easy to do.
Old mortgage points
Most people know there are tax breaks in income taxes filed for the year of a new home purchase, but points on refinancing a mortgage count as well. In some cases, tax deductions on mortgage points can be made the second and successive years until the points have been fully deducted.
Limits and other restrictions apply, so talk to your tax preparer about the points or have this information ready when you start calculating deductions with tax preparation software. More information is available in IRS publication 936.
Medically-oriented products and services
Obvious medical expenses, such as the cost of health insurance, the cost of doctor visits or co-pays, and the costs of medication are deductible from total income, and most people are probably aware of this and take those deductions. However, many other deductions are available which may not be quite as obvious, like the cost to purchase glasses, contact lenses, and false teeth.
People who have a recorded diagnosis with certain conditions can be eligible to write off some purchases at the end of the tax year. It might not be a surprise that diabetics can write off the cost of insulin shots, but other credits may not be so obvious. For example, people with celiac disease, an immunological response to the gluten found in wheat, barley, rye and some other grains, can write off substitute food purchases such as loaves of gluten-free bread, packages of rice-based pasta, and gluten-free flour substitutes such as rice flour or additives like xanthan gum.
Tax breaks are available to patients diagnosed with obesity, who can write off purchases of diet foods and other expenses like gym memberships, exercise and nutrition classes, and treatment programs.
Other tax breaks for eligible health expenses include participation in smoking cessation programs, and such as nicotine patches or gum which require a prescription. The costs of gas mileage, bus fare, tolls, parking and other fees related to transportation to and from required visits to a doctor’s office also qualify as deductions.
For more information on eligible medical deductions, read the IRS tax topic 502.
Last year’s home energy saving purchases
Many of us have heard about tax breaks for buying things like solar panels or installing a residential wind turbine for power, or a new solar hot water heater. The credit is limited to 30 percent of the purchase price and cost to install, but whatever amount over the taxes owed in the purchase year can be applied as a credit the following year. For example, if John purchased a $20,000 wind turbine in 2012, he was eligible for a tax credit of $6,000, but John only owed $3,000 in 2012 taxes. This year, John can carry over the remaining $3,000 and apply it toward his 2013 taxes as a tax credit.
The most important thing to remember about claiming deductions is to keep track of receipts and other paperwork which proves the expenses were incurred during the tax year and for how much. Having good habits with receipts throughout the year will make filing taxes and claiming more tax deductions and credits easier. Having the documents easy to access will also make life easier should a dreaded audit occur.