When many Americans file their individual tax returns this year, they will take the IRS’s standard deduction, which is based on age, income and filing status, and changes from year to year. For the calendar year 2014, the standard deduction is $6,200 for singles and married people filing separate returns, and $12,400 for married couples filing jointly.
But for those who either aren’t eligible for the standard deduction or choose to itemize, every penny counts, and these frequently missed deductions can make a big difference when their tax bill is due.
State Tax or Sales Tax?
For many taxpayers, one of the first questions they consider when beginning their tax prep is whether to take the standard income tax deduction or itemize their deductions. But residents in the seven U.S. states without an income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) know there’s another way: deducting state tax.
Luckily, U.S. residents outside of those seven states have the option to claim either state and local sales taxes, or state and local income taxes, whichever is greater. (But don’t claim both!)
“After last year, the IRS allowed a sales tax deduction to occur in lieu of state income tax,” says Curtis Erickson, a certified public accountant, personal financial specialist and certified tax coach in the income-tax-free state of Washington. “People think that’s just a general table amount that the IRS allows based on their adjusted gross income, but you could still take the standard deduction and add expenditures for home improvements, or if you bought a new vehicle or a recreational vehicle, it could be a pretty significant deduction.”
The IRS offers a sales tax deduction calculator to help taxpayers determine the amount of taxes they are eligible to claim.
Re-Determining Dependents
The IRS says children can be declared dependents until age 19 if they’re not in school, 24 if they are and at any age if they’re permanently disabled. But many people aren’t aware that parents can also qualify as dependents, according to the IRS. Americans of the so-called ” sandwich generation,” those people financially supporting both parents and children, might find extra relief at tax time by broadening their definition of dependent to match the IRS’s.
“If you’re providing more than half of a parent’s financial support, you may be able to claim your parent as a dependent,” Erickson says. “If that’s the case, besides getting a dependent deduction, you may also be able to claim your parents’ medical expenses when you itemize your own medical expenses.”
Dependent status isn’t only limited to parents and children, however. The IRS has allowances for more than 30 types of relatives, and says that a standard deduction for dependents is either $1,000 per deduction, or the individual’s earned income for the year plus $350, whichever is the larger amount. For an easier breakdown, the TurboTax blog offers a handy cheat sheet.
Need a Bandage? Save the Receipt.
Whether caring for an ailing parent, making home improvements per a doctor’s advice or writing off the mileage to shuttle dependents back and forth to appointments, deductions for medical care are the most overlooked deductions and can help create a healthy return for qualifying taxpayers.
“The deductions that most people know about are the ones they get handed to them in the mail — mortgage interest, property taxes and charitable deductions,” says Dan Connors, a CPA in private practice in Missouri. “Probably the most hidden deductions are medical deductions because they are not reported to the IRS by medical providers, and the 10 percent income threshold for them makes the deductions meaningless for a great number of people.”
From smaller items like hearing aid batteries and bandages, to larger expenses, including health care premiums, wages for a home health care worker and nursing home care, many health care expenses qualify, provided they account for more than 10 percent of earned income. Connors says large-scale home renovations done per a doctor’s direction or to make a home more accessible might also qualify as a medical deduction.
A Penny Saved … Is Next Year’s Deduction.
Whether you’re working with a CPA, walking into a H&R Block or Jackson Hewitt office at the last minute or filing at home via TurboTax or other online tax prep software, think twice before simply taking a standard deduction. Itemized deductions may take more time to organize and report, but for those who qualify, they can help minimize your tax bill and maximize your return. Those savings, in turn, can help send a dependent child off to college, hire help to care for an aging relative or make some much-needed home repairs. And be sure to save all those receipts; they’ll come in handy next year.
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Ease Your Tax Burden With These Hidden Deductions originally appeared on usnews.com
