Tax laws are constantly changing. It’s hard to keep track of what you can deduct, what you must report, and all the other moving parts of the daunting process that is filing taxes. During the last years, CNBC reports that Americans took significantly fewer itemized deductions compared to 2017 and before, due to the Tax Cuts and Jobs Act, which doubled standard deductions. This is just one example of how a singular change leads to massive changes in the way people file their taxes. But it has always been confusing to know what can be written off. The IRS reports that one in five people eligible for the Earned Income Tax Credit (designed for low-to-moderate income taxpayers) do not take it.
If you pay a tax professional to help you, the hope would be that nothing is missing. But no one is perfect and a small human error can mean a big financial loss. There are a lot of things you pay for every year that you could deduct, but maybe you don’t. Here are the most overlooked tax deductions.
Earned income tax credit
Let’s start by taking a look at the Earned Income Tax Credit (EITC) mentioned above. Designed for low to moderate income taxpayers, it is a refundable tax credit – so not technically a deduction. The refund amount depends on the deposit status and there is a range of $1,502 to $6,728. However, recently the benefits for this refund have increased with many people losing their jobs, taking pay cuts and getting fewer hours of work in 2021. As a result, many people who are eligible for this refund are unaware of this. Talk to your tax professional to see if you qualify. You must file a tax return to get it, even if you had no income in 2021.
Everything and nothing charity
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It’s easy to remember that you wrote a check for $1,000 for a charity of your choice. What’s not so easy is tracking all the ingredients you’ve bought to bake cookies for philanthropic bake sales, or how much you’ve spent volunteering to drive a group of senior citizens from their homes to their doctor’s appointments. If you are a generous person, you may have accumulated quite a few personal expenses for charitable efforts in the past year, and you can deduct them.
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This is how much the government wants you to quit smoking: they will pay you for it. Kind of. You may be eligible for deductions for “participation in a smoking cessation program”, depending on the IRS. This includes drugs used to relieve nicotine withdrawal symptoms. There are limits to the deduction. The IRS states, “You can only deduct the amount of your total medical expenses that exceeds 7.5% of your adjusted gross income.”
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The same law that allows you to deduct expenses related to quitting smoking will also allow you to deduct expenses related to weight loss. If your doctor diagnoses you with an illness, such as obesity, that causes you to lose weight, you can deduct expenses associated with weight loss programs. This will not include payment for regular items such as food or gym memberships.
Student Loan Interest – It Doesn’t Matter Who Paid
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Parents paying a student loan on behalf of their child is a common practice. With many lenders basing payment on the borrower’s income, having a student – with no or low income – complete the application is the obvious way to get a cheaper loan. Then sometimes their parents step in and make those actual payments. In the past, if that was the case, no one could get tax relief. But recently, those who have student loans in their name but paid for by someone else can start taking advantage of the student loan interest deduction of up to $2,500.
The majority of taxpayers can no longer claim moving expenses, even when moving for work. But one group that can still benefit from this deduction is active military personnel. If you’re in the military and the government has asked you to move for a job, you can deduct everything from travel expenses to accommodations to airfare paid to transport your pets from one point to another. A to point B, through the money paid to the guys who lifted your couch up the stairs.
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Many parents struggle to decide whether or not someone should stay home or pay for child care. Depending on the loss of income of the stay-at-home parent, it would sometimes be more expensive to find a babysitter than to simply leave work. However, it doesn’t have to be a situation or situation. If you’re paying for child care so you can go to work, you’re probably eligible for the Child and Dependent Care Credit. This is a good time to look into this credit because its benefits have recently increased. For starters, the allowable amount of expenses has increased from $3,000 to $8,000 per person and from $6,000 to $16,000 per household. Also, in previous years, the benefit was reduced for people earning as little as $15,000 a year, but that number rose to $125,000 a year.
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Sales taxes can be very high in some areas, and they become significant on large purchases. If you paid high sales tax on an expensive item like an engagement ring, boat, or motorcycle, you can cancel it. The IRS has a helpful sales tax deduction calculator to help you determine how much you can deduct. According to their website, “Your total deduction for state and local income, sales, and property taxes is limited to a combined total deduction of $10,000 ($5,000 if married and filing separately) .”
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