Written by Grant McCainn
When we sit down to do our taxes, sometimes we choose to do them expediently. This can serve you well if you have few deductions and few financial requirements to report. However, it’s worth considering that many taxpayers neglect to claim deductions that are available to them that can save them money.
1) Itemized Deductions from State / Local Income Taxes
If you itemize your deductions on Schedule A and file a Form 1040, you have the option of claiming either state and local income taxes or your state and local sales taxes. The IRS doesn’t permit you to claim both. Planning ahead is pretty essential, because you’ll need all of your saved receipts throughout the year. Add up the total amount of your sales taxes you actually paid and claim that amount. If you don’t have your receipts, you can fill out a worksheet and depend on the optional general sales tax tables provided in the instructions for Schedule A. Additionally, the IRS offers a sales tax deduction calculator to figure the amount of optional general sales tax you are eligible to claim.
2) Job Hunting Costs
Job hunters have costs associated with their search that the IRS considers deductible. Keep track of your job-search expenses so that you can reconstruct them at tax time. There is a requirement. You need to understand that the IRS allows you to deduct expenses on a job search in your current occupation. You can’t deduct them if you’re in appliance repair and are making a career change to become a school counselor. When you itemize, you total these as miscellaneous expenses. In order for them to be deducted, they need to exceed 2% of your adjusted gross income. There is a list of deductible costs that you can find in the official Publication 529 for the applicable tax year. Briefly, you can include ordinary, reasonable and necessary expenses. These include: mailing resumes and preparing them, creating websites and maintaining them, and having business cards made. If an employment agency charges a fee, you can deduct that fee. You can also include travel expenses. None of this is applicable if you are hunting for your first job however.
3) Self-Employed Medicare Premiums
A lot of self-employed taxpayers can receive Medicare and are able to deduct all of the Medicare insurance premiums. After 2010, the IRS decided that all forms of Medical are deductible (Parts A, B, C, and D). If you are a sole proprietor, partner in a partnership, limited liability company member, or S corporation shareholder who owns more than 2% of the company stock, then you can use this deduction. In fact, if you’ve been paying the Medicare insurance premium for the past several years, you can amend your return up to three years after the date you filed your original return for the year. To amend your return, you file Form 1040X, Amended US Individual Income Tax Return.
4) Expenses from Hobbies that Earn Income
If you earn income from a hobby, you may be allowed to deduct ordinary and necessary hobby expense with limitations. A hobby is not entitled to the same tax deductions that business people can claim. The IRS usually allows you to deduct your hobby expenses up to the amount of your hobby income. The IRS considers any expenses that exceed your hobby income as personal losses that are not deductible. The IRS requires that you itemize your deductions on your tax return. There are different categories that the IRS uses when it comes to distinguishing between hobbies and businesses. When you review the tax categories and find that what you thought was a side business is really a hobby that generates income but not profit, you can deduct hobby expenses. Make sure that you follow the IRS categories of expenses in order and only to the maximum allowed. The IRS considers that when you show consistent losses year after year on a hobby, and conduct your hobby in a businesslike fashion, that they can view it as a hobby.
5) Moving Expenses
Moving expenses can be deducted if your move is closely related to the start of work and you meet certain distance and time requirements. However, a lot of people don’t know you can include the cost to move your pets.
6) Losses from Wagers
The IRS considers losses from any type of wager that a taxpayer makes deductible. They require that once you report your gambling winnings on your tax form, that if you want to deduct gambling losses, then you have to keep an accurate diary or similar record of your losses and winnings. The diary must include specific information so that the IRS can assess the legitimacy of the claims. There is a limit however. You cannot deduct an amount for losses that is greater than your wager earnings. If you won $1,000, then you can’t deduct $1,500 in wager losses. Often times, if you have won more than $600 at a casino or gambling facility, then you should receive a form W-2G and so does the IRS. If you’re a casual gambler, the IRS permits you to record your net win or net loss amount for a gambling session and report those sum total of wins and losses in the appropriate boxes on your tax forms and supporting documents.
7) Work Uniform and Upkeep Costs
The IRS recommends that you deduct the cost and upkeep of work clothes if you must wear them as a condition of your employment and the clothes aren’t suitable for everyday wear. A uniform is often required in jobs like firefighters, health care workers, delivery workers, letter carriers, transportation workers and law enforcement officers. You can deduct the cost of protective clothing required in your work. If you are on full-time active duty in the armed forces, you generally cannot deduct the cost of your uniforms, however, you can deduct the unreimbursed cost of your uniform if you are a reservist if military regulations restrict you from wearing them off-duty.
8) Friendly Loan Non-Repayment Capital Loss
If you made a legitimate loan to a friend or family member and they never pay it back, the IRS allows you to deduct it as a short-term capital loss as long as you meet certain requirements. It has to be a legitimate loan, not a gift. To prove that it is a debt, you should have a written promissory note signed by the borrower. The IRS considers that you must also have taken steps to collect the debt and have charged interest on the loan, so that you aren’t treating it as a gift. In order for it to be considered a nonbusiness bad debt deduction, you must have actually loaned cash to someone who does not repay it and the entire debt is uncollectible. That does not mean that you have to file a lawsuit to collect or wait until the entire debt is overdue to determine whether it is unrecoverable. You simply need to show that there is no longer any chance that the loan will be repaid. The bad debt is deductible in the year that it became valueless, but you must file within 7 years from the date your original return for that year had to be filed. There are two kinds of bad debts: business and nonbusiness. Refer to IRS Publication 550 “Investment Income and Expenses” and Publication 535 “Business Expenses” in order to understand the differences and the specific requirements to claim this deduction.