Do you know that one of the most effective ways of ensuring you get the biggest possible tax refund is claiming all deductions and credits you qualify for?
People are usually aware of the more common and obvious benefits you can claim on your taxes like having a child or buying a house, bu there are more ways to save than those two.
If you're tired of missing out on money on your tax returns, here are some of the most commonly overlooked tax deductions for family, business and home transactions.
1. Student loan interest paid by someone else or yourself
In the past, if parents or somebody else paid back a student loan incurred by a student, no one got a tax break. To get a deduction, the law said that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. You may know that you might be eligible to take a deduction, but even if someone else pays back the loan, the IRS treats it as though they gave you the money, and you then paid the debt. So, a student who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by you or by someone else.
2. Refinancing mortgage points
When you buy a house, you often get to deduct points paid to obtain your mortgage all at one time. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Doesn't seem like much, but why throw it away?
Also, in the year you pay off the loan—because you sell the house or refinance again—you get to deduct all the points not yet deducted, unless you refinance with the same lender.
3. Medical expenses
Medical expenses can eat up quite a lot of your budget, especially if they catch you off-guard. If you’re covered by your insurer, then you’re in a better position. Some unforseen events may be covered by inssurance but others may not.
But there’s a brighter side to this: the IRS allows some relief on taxpayers by making some of these expenses partly deductible. Citizens are allowed to deduct medical expenses exceeding 7.5% of their adjusted annual gross income.
These cuts are deductible on preventive care, surgeries, treatment and dental and vision care. Visits to the psychiatrist, psychologist and costs on medication appliances and drugs are also tax deductible.
4. Out-of-pocket charitable contributions
It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction, but the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for food you regularly prepare for a qualified nonprofit organization, for example, the wool put into knitting for donations or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution. If you drove your car for charity during the year remember to deduct 14 cents per mile.
5. Home office expenses
There are lots of financial benefits for having a home office, but you will still incur in considerable costs with regards to operating it. That’s one of the main reasons why home office expense tax deductions exists. But as it happens with most taxes, having a home office alone doesn’t qualify for the tax benefits. There are a few conditions that have to be met.
To start with, the home office must be used exclusively, as a primary place of business, where you meet customers and the like. Along the same lines, the area used as a home office must not be used for any other kinds of personal purposes.
Lastly, the deduction to be made is only limited to the income made from the activities undertaken in the home office.
Federal tax laws allow you to deduct moving expenses off your tax returns if you are relocating for a new job or there is a transfer during your current job by the employer. However, not every move justifies a tax deduction.
There are a few conditions that are necessary. Most importantly, the distance and time test requirements.
The distance test requirement states that the distance between your new and former home must be at least 50 miles farther than the previous home.For instance, if you used to commute 10 miles to work, your new home must be at least 60 miles away
The time test requirement states that you must work for at least 39 weeks for the new employer starting the day you arrived. The days do not have to be consecutive and the employer shouldn’t necessarily be the same person.