There’s a lot of talk right now regarding Americans paying their “fair share” to the tax man. While many issues are up for debate, most parties agree the tax code needs some work. But as you gather documentation to do your 2012 taxes, forget about future tax policy. The most important thing is to make existing tax breaks work in your favor. Nobody should pay more taxes than they have to – and if the IRS provides a legal deduction, it’s not sneaky or unfair to take them up on the offer.
The problem is that a convoluted tax code prevents many Americans from finding some deductions even when they’re entitled to them. Here are five commonly overlooked deductions that may be worth noting.
• “Catch-up” retirement deductions: The IRA contribution limit for younger Americans is $5,000 for tax year 2012, but you get up to $6,000 if you’re 50 and older. This deduction is designed to help those closer to retirement catch up if they’re behind – and considering that some polls estimate half of Americans have zilch in retirement savings, you can understand why many need to catch up.
• Job-hunting costs: Did you pay fees to an employment placement agency during your job search or join a professional organization to network? Are you out of pocket for travel to an interview, even if it was just gas and mileage, or spend hundreds on high-priced résumé stationery and work samples? These are applicable expenses that can be added to your itemized deductions.
Best of all, you don’t have to be unemployed to qualify for many job-hunting tax breaks: Just looking for a job in your present field of employment allows you to reap these benefits. Make sure you’re being reasonable, and that these costs are 100% related to a job search. In other words, a trip to the Super Bowl is not a tax write-off just because you fill out an application at Starbucks while you’re in New Orleans.
• Interest on student loans paid by someone else: Since it’s your name on the loan, it’s your deduction, even if your parents co-signed and they’re making the payments. The only way your parents can claim the interest is if you’re still a dependent on their tax return or if the original loan was wholly in their names.
• Glasses and contacts: Prescription eyeglasses or contact lenses are in the same category of itemized deductions as a wheelchair or a hearing aid. While it might not seem like a medical expense to buy reading glasses with pink plastic frames, the IRS will cut you a break. Considering what some of us pay for designer eyewear, this can add up.
• Out-of-pocket charity expenses: It’s easy to include the documentation from cash donations. But what about the little things, such as paint and poster board for a school fundraiser, or the ingredients in your famous green bean casserole, which is served at the local soup kitchen each Sunday? Don’t forget the driving; while commuting to and from a charity office doesn’t count, delivering meals or chauffeuring other volunteers can be deducted at a rate of 14 cents per mile.
A qualified tax adviser will know more itemized deductions, and don’t forget that the IRS offers tax tips on its website, such as this page on overlooked tax credits.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.
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