Only knowledge about tax breaks and tax deductions – or a good accountant – can help you not overpay in taxes every year. In fact, millions of taxpayers overpay their taxes each year by over-looking some basic tax breaks. Here are some common tax deductions you should be taking advantage of:
You can include job-hunting expenses in your itemized tax deductions. These apply if you were hunting for a job positions in the same industry or area as your previous job, even if you don’t land a new job in the end. You cannot deduct job-hunting expenses if you were searching for your first job. Deductible costs include: transportation costs (public transportation, taxis, and driving yourself – which has a deductible rate of 53.5 cents per mile), food and hospitality costs for travels, employment agency fees, and costs of printing, postage, career counselling, and others.
Moving Costs to Take a New Job
Although you cannot deduct job-hunting expenses for your first job, you can deduct expenses if you are required to move to take this new job (for your first and any subsequent job). This is considered an “above-line deduction” which means it can go under standard deductions on your tax return – no need to itemize. To be able to deduct these moving expenses, your new job has to be at least 50 miles farther from your home than your old job.
State Sales Taxes
You can choose between deducting state income taxes or paid state sales taxes – whichever would be more beneficial for you. If the state you live in doesn’t have state income tax, and therefore you can’t deduct it, you can go with writing off your paid sales taxes. The IRS provides tables and a calculator that shows how much you can deduct based on your state. Also, if you purchased a big-ticket item such as a boat, car, or plane, you can add those sales taxes to the maximum allowed in your state.
You can deduct charitable donations, even small out-of-pocket expenses incurred while serving a charity. These include and are not limited to meal ingredients, toys, activity materials, and others. You can even deduct 14 cents per mile if you had to drive for charitable causes. Keep in mind that if your expenses add up to more than $250, you’ll need a document from the charity that proves your contribution. However, you may not deduct the value for your time invested in a charity – deductions only apply for actual cash spent. Keep in mind as well that charitable deductions cannot exceed 50% of your adjusted gross income per year, but any excess can be carried over for up to the five following years.
Annoyed of those baggage fees that airlines love including and that make your travel expenses not so cheap anymore? At least you can ease the pain – well, some people do. If you’re self-employed, are travelling on business, and get charged fees for extra luggage, online booking, or for changing your travel itinerary, you can deduct these expenses.
Alimony paid to an ex-spouse can be included as a non-itemized deduction. It applies only to cash payments that are set in your divorce agreement. You’re also required to state the social security number of the ex-spouse and he/she has to report the alimony as taxable income. Legal fees incurred to set the alimony amount and related tax advice can be written off as an itemized deduction as miscellaneous expenses. However, court-ordered child care support payments are not deductible.
Social Security Taxes
This only applies to the self-employed, since they have to pay the full 15.3% social security tax themselves. If you’re self-employed, you get to write off 7.65% of the amount you paid in social security taxes. It can be included as a non-itemized deduction.
Read the next post for part two of this article!