6 Overlooked Tax Breaks for Individuals
Confused about which credits and deductions you can claim on your 2013 tax return? You’re not alone. Here are six tax breaks that you won’t want to overlook.
1. State Sales and Income Taxes
Thanks to the fiscal cliff deal last January, the sales tax deduction, which originally expired at the end of 2011, was reinstated in 2013 (retroactive to 2012). As such, taxpayers filing their 2013 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.
If you bought a big ticket item like a car or boat in 2013, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2012 tax return in 2013, you can include the amount when you itemize your state taxes this year on your 2013 return.
2. Child and Dependent Care Tax Credit
Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent–such as an elderly parent–who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35percent of $3,000 of eligible expenses per dependent.
3. Job Search Expenses
Job search expenses are 100percent deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations, as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses greater than 2percent of your adjusted gross income (AGI).
4. Student Loan Interest Paid by Parents
Typically, a taxpayer is only able to deduct interest on mortgages and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans the money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.
5. Medical Expenses
Most people know that medical expenses are deductible as long as they are more than 10 percent of AGI for tax year 2013. What they often don’t realize is what medical expenses can be deducted, such as medical miles (24 cents per mile) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.
Other deductible medical expenses that taxpayers might not be aware of include: health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (deductible dollar amounts vary depending on age) is also deductible, as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs.
If you’re self-employed, you may be able to deduct medical, dental, or long term care insurance. Even better, you can deduct 100 percent of the premium. In addition, if you pay health insurance premiums for an adult child under age 27, you may be able to deduct them as well.
6. Bad Debt
If you’ve ever loaned money to a friend, but were never repaid, you may qualify for a non-business bad debt tax deduction of up to $3,000 per year. To qualify however, the debt must be totally worthless, in that there is no reasonable expectation of payment.
Non-business bad debt is deducted as a short-term capital loss, subject to the capital loss limitations. You may take the deduction only in the year the debt becomes worthless. You do not have to wait until a debt is due to determine whether it is worthless. Any amount you are not able to deduct can be carried forward to reduce future tax liability.
Are you getting all of the tax credits and deductions that you are entitled to? Maybe you are…but maybe you’re not. Why take a chance? Make an appointment with us today and we’ll make sure you get all of the tax breaks you deserve.
“Tom” has extensive experience in tax services, auditing, and financial consulting, including business planning, business evaluation, and management services. His experience includes a broad range of industries emphasizing real estate, retailers, restaurants, computer companies, computer consultants, doctors, dentists, lawyers, wholesale distributors and exporters. He graduated in May 1986 in accounting from The American University in Washington, DC with a Bachelor of Arts Degree in business. After several years as a Supervisor for a large accounting firm, he went into practice for himself. Tom holds a Certified Public Accounting certificate from the State of New Jersey. He is also a member of the American Institute of Certified Public Accountants. Currently, Tom serves as an officer to several non-profit organizations in the area:The Greek American Chamber of Commerce of NJ; The Monroe Chapter #75 of the American Hellenic Education & Progressive Association; The Central Jersey Council of the United States Naval League. He resides in East Brunswick with his wife Barbara and two sons, and enjoys biking, swimming and weight training.