ICFE eNEWS #14-03 - March 28th 2014
10 Credits And Deductions Commonly Missed
I recently watched a couple of TV shows where people used
metal detectors to uncover "buried treasure." One show focused
on buried meteorites, the other on Civil War artifacts. Although
many of the unearthed "treasures" were not valuable, it only
took one profitable "hit" to keep the "prospectors" motivated
enough to continue searching.
Reading this article by CPA Stacy Johnson, CEO and Editor of
MoneyTalkNews, can be similar to that experience. He shares ten
common credits and deductions that are often missed while
preparing our taxes. You may already know all ten, but if there
is just one that you are not familiar with, you may have
discovered "buried treasure" that will save you money!
The IRS has a
handy calculator to see how much you can deduct.
- Charity. You can deduct the value of
any cash or property donations to a legitimate charity,
although you'll need receipts. That's common knowledge, but
here's something that isn't: Volunteers can deduct 14 cents
per mile traveled to and from charity work, plus
out-of-pocket expenses from that work, including supplies
and required uniforms. (Your time isn't deductible.) For
more details, check out Publication 526, the
IRS Guide to Charitable Contributions.
- Child care. The Child and Dependent
Care Credit helps cover the cost of day care (20 to 35
percent, depending on income), but many people aren't aware
it also extends to the cost of summer day camps (but not
overnight-stay camps), adult dependent care and even
housekeeping. Restrictions apply, but it's worth checking
out. For this one, you'll want to look to
IRS Publication 503.
And remember, a credit is
worth a lot more than a deduction, because a credit reduces
your taxes dollar for dollar, whereas a deduction only
reduces the income you're taxed on. For example, if you're
in the 25 percent tax bracket, a dollar of deduction reduces
your tax by 25 cents. But a dollar of credit reduces your
taxes by a full dollar.
- Retirement. Retirement contributions
often qualify for a deduction (which reduces your taxable
income) but they can also net you a credit if you make under
$27,750 a year for single taxpayers and $55,500 for joint
It's called the Retirement Savings Contribution
Credit or Savers Credit, and if you made contributions to an
IRA, 401(k) or other qualified retirement plan, you may be
eligible for a credit of up to $1,000 single or $2,000
joint. The less income you make, the bigger the credit.
If you've moved at least 50 miles for a job, you may be able
to deduct moving expenses. But if you're actively seeking
work, many other costs are deductible, too - employment
agency fees, resume preparation, business cards, travel (at
56.5 cents per mile) and other expenses.
But there are
catches. It has to be for work in the same field, and it's
only for those who itemize. To see what you can qualify for,
you can check Publication 521. But a quick way to determine
if your moving expenses will be deductible is to use
this IRS worksheet.
- School. Knowledge is power and
lower taxes. The American Opportunity Credit is the best way
to lower taxes because it's partially refundable, meaning
you can theoretically get more money back than you paid in.
You'll get the credit for the full amount of the first
$2,000 spent on qualifying college expenses and 25 percent
of the next $2,000, so the max is $2,500. Income limits
apply. It starts phasing out for single taxpayers with a
modified adjusted gross income of more than $80,000,
$160,000 for joint filers.
The American Opportunity
Credit is only available for the first four years of
college. If you go beyond that, look to the Lifetime
Learning Credit. It's up to $2,000 -- 20 percent of the
first $10,000 in qualifying expenses - and is available for
as many years as you qualify. It also includes graduate
classes and job training courses.
Income limits apply to
this one as well. For 2013, the credit starts phasing out
for single taxpayers with more than $53,000 of modified
adjusted gross income, and joint filers with $107,000 of
Make too much to qualify for either credit? You can
still deduct qualified expenses under the Tuition and Fees
Deduction. It can reduce your taxes by up to $4,000. Read
about all the education credits and deductions
here. But remember, you can't take them all, just the
one that will give you the biggest write-off.
- Military service. If you're in the
Reserves and traveled more than 100 miles last year for
training or other duties, you can deduct hotel stays, half
your meal costs, and travel expenses (parking, tolls,
mileage at 56.5 cents per mile). No need to itemize. The IRS
tax tips for service members - for instance, pay from
any month you spent in a combat zone is not taxable.
- Medical expenses. Because of income
limitations, medical expenses are tough to deduct. But do
the math if you had big bills last year. Expenses totaling
more than 10 percent of your adjusted gross income (7.5
percent if you were born before 1949) will reduce your
There are a lot of qualifying medical
expenses to include, like insurance premiums (including what
you pay into an employer plan) and travel to and from
The self-employed can deduct their whole
insurance premium as long as they made a net profit for the
year and aren't covered by another employer (including
through your spouse).
- Energy efficiency. For several years
now, there have been some juicy credits for installing
qualifying energy savers, like new windows and insulation.
But it looks like tax year 2013 will be the last year. You
get a credit of 10 percent of the cost of certain
energy-saving improvements for 2013, but it has a lifetime
limit of $500, and only $200 of that can be for windows.
Read more at
this page of the IRS site.
There's still one great
credit left, however. If you installed something that uses
alternative energy, like a solar water heater, geothermal
heat pump or wind turbines, you can get a credit of up to 30
percent of the cost. That's good until 2016.
- Baggage fees. If you're self-employed
and travel for business, you know that your travel expenses
are deductible. But if you got nailed for a baggage fee at
the ticket counter last year, that's deductible too.
- State sales taxes. You may have heard
that the deduction for state sales taxes was slated to
expire. It was, but was reinstated. You're allowed to deduct
either state sales taxes or state income taxes, whichever
helps most. If you're lucky enough to live in a state
without state income taxes, easy decision: Deduct your sales
taxes. But even if you do pay state income tax, you should
still compare, especially if you bought a big-ticket item
last year, like a car.
Source: MoneyTalkNews.com, Stacy Johnson, February 26, 2014.
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AskMrG Consulting, LLC
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Institute of Consumer
Financial Education (ICFE)
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