No one wants to hand over extra money to the taxman. Even the IRS encourages taxpayers to be sure they’re taking advantage of all the credits available to them.
Sadly, the U.S. tax code is far from straightforward, which makes it difficult to uncover where tax breaks hide and who qualifies for them.
That’s why we’ve put together this roundup of common — but frequently neglected —tax credits and deductions.Compare your records to the list and ensure you’re getting every benefit you’re entitled to.
1. Charitable Giving, Including Volunteer Travel Costs
If you itemize your deductions, you probably already know you can deduct charitable gifts, whether cash or donated items.
What many filers overlook is that you may also deduct travel costs when you volunteer for a charitable organization.
For instance, if you drive to a food bank every week, you can deduct either your actual expenses or opt for the standard rate of 14 cents per mile.
The IRS notes these travel-related costs may be deductible:
- Air, rail and bus fares
- Out-of-pocket car expenses
- Taxi fares
- Lodging
- Meals
However, the IRS is clear that you can’t combine volunteer work with leisure travel and expect a deduction. Here’s a relevant excerpt from Page 5 of Publication 526 on Charitable Contributions:
Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. … The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip.
Put simply, you can’t deduct a mission trip to the tropics if you spend most of the time sightseeing and only briefly drop off supplies.
If you’re unsure, Publication 526 provides lists and examples of volunteer travel and other expenses that qualify or don’t qualify as deductible charitable contributions.
2. State Sales Tax
Historically, the federal return allowed deductions for state and local income taxes only, which left residents of the seven states without an income tax at a disadvantage.
About a decade ago Congress addressed that and now lets taxpayers choose to deduct either state and local income taxes or state and local sales taxes. Sadly, not everyone knows this option exists.
If you live in a state without income tax (lucky you), deducting sales tax usually makes sense.
For others, you’ll likely be better off deducting income taxes unless you made a major purchase like a car or boat or live in a state with hefty sales taxes (I’m looking at you, Tennessee.).
If you’re unsure whether income or sales taxes yield a bigger deduction, try the IRS’s sales tax deduction calculator.
3. Child and Dependent Care Credit
This is one you’ve likely heard of, but you might be missing some of the ways it applies.
The most familiar use of the Child and Dependent Care Credit is for daycare costs for children under 12. The credit exists to help cover care expenses while you work or seek employment.
But you can also claim this credit for care expenses for an elderly parent or a disabled spouse who lives with you and requires care while you work.
Additionally, you may qualify to use the credit for summer day camps if you enroll your kids so you can work.
4. Retirement Savings Contributions Credit
Also called the Saver’s Credit, this incentive aims to encourage lower-income workers to start saving for retirement.
You qualify if you meet these conditions:
- Age 18 or older
- Not claimed as someone else’s dependent
- Not a full-time student
- Within the income eligibility thresholds
Those income limits range from $30,500 for single filers up to $61,000 for married couples filing jointly.
Depending on your income, you could receive a 10%, 20% or 50% credit on the first $2,000 you save in a qualifying retirement account such as a 401(k) or an IRA. Married couples filing jointly can claim the credit on the first $4,000 in contributions.
Remember, a credit reduces your tax bill dollar-for-dollar. If you qualify, don’t overlook this one.
See this IRS chart for more on income limits and eligibility.
5. Earned Income Tax Credit
This credit often stirs debate. Some critics object that the Earned Income Tax Credit provides refunds to people who may not have paid federal income taxes.
You may have strong feelings about that, and you’re welcome to share them in the comments.
But this article focuses on commonly overlooked credits, and the EITC is frequently missed.
The primary reason it’s overlooked is that many who qualify aren’t required to file a tax return.
For the 2015 tax year, the credit could be as much as $6,242 for married couples with three children and adjusted gross incomes up to $53,267.
Even single filers with no children may qualify for a smaller credit if their earnings are below $14,820.
The EITC is refundable, meaning you can receive a refund check even if you owe no federal income tax.
If you earn income but don’t typically file because your wages are very low, it’s worth checking whether you qualify for the EITC.
You can find free tax prep services to assist you. TurboTax also provides useful EITC information.
6. Job-Related Expenses
If your unreimbursed job expenses exceed 2% of your income, you can include them among your itemized deductions.
Not every expense qualifies — for example, you can’t deduct your regular lunch. But the IRS allows deductions for these items if your employer doesn’t reimburse you:
- Work uniforms
- Professional association dues
- Protective clothing
- Safety equipment
- Small tools
- Job-hunting costs
Regarding job search costs, you can claim them even if you don’t land a new position.
7. Moving Expenses
If you land a new job that requires relocating to a different city or state, you may be able to deduct your moving expenses.
To qualify, your move must meet these tests:
- Distance test: Your new job location must be at least 50 miles farther from your old home than your previous job’s main workplace was.
- Time test: As an employee, you must work full-time at the new location for at least 39 weeks within the first 12 months after arriving. If you’re self-employed, you must work 39 weeks in the first 12 months and 78 weeks within 24 months.
Some exceptions apply, and the time requirement can be waived in special situations, such as military service or if your new job ends early because of death or disability.
If you meet the rules, you can deduct 23 cents per mile for use of your own vehicle for the move.
Additionally, you may deduct the cost of transporting your household goods and any lodging expenses you incur during the move. See IRS Publication 521 for full guidance.
8. Education-Related Tax Breaks
If you, your spouse or a dependent is enrolled inpost-secondary education, you should pay close attention.
The government provides three primary tax benefits for college students and their families:
- American Opportunity Tax Credit
- Lifetime Learning Credit
- Tuition and Fees Deduction
Of the three, the American Opportunity Tax Credit usually offers the biggest return. Up to 40% of this credit is refundable, meaning you can receive cash back even if you owe no tax. You can claim up to $2,500 per year (for up to four years) for each qualifying student.
The Lifetime Learning Credit is generally the next-best option.
As a credit, it reduces your tax liability dollar-for-dollar, but unlike the American Opportunity Credit it’s not refundable. If the credit exceeds your tax due, you won’t receive the excess as a refund.
The Lifetime Learning Credit can be applied to qualifying expenses for you, your spouse or a dependent.
The tuition and fees deduction lets you deduct up to $4,000 a year in eligible expenses. Unlike the credits, this deduction cannot be used for a dependent’s expenses — it only applies to you and your spouse.
You can only claim one of these education benefits per year, so pick the one that gives you the best tax outcome. Income and other eligibility rules apply. Review this IRS comparison chart to help decide.
Your Turn: How have tax deductions or credits helped (or not) in your situation?
This piece originally appeared onMoney Talks News. Since 1991, MoneyTalksNews has been creating video and print content to help you earn more, spend less and avoid scams.
