Income-Tax Savings You May Be Missing
By BARRY LISAK
Are you paying more tax than you need to? When it comes to filing taxes, getting the best returns is not about skill—it’s about what you know. Here are some tax strategies you may have overlooked.
1. Earned Income Tax Credit (EITC). Millions of lower-income people miss out on this every year. According to the IRS, 25 percent of taxpayers who are eligible for the EITC fail to claim it. The EITC is a credit—not a deduction, ranging from $503 to $6,242. The credit is designed to supplement wages for low-to-moderate-income workers. Many wage-earners previously classified as middle- class who have lost jobs, taken a pay cut, or worked fewer hours may now be eligible for this credit based on lower income.
2. Be flexible. Company sponsored health-care flexible- spending accounts and transportation- reimbursement accounts give you a tax break on money you’re already spending on commuting and medical bills. Yet few people take advantage of them: only 20 percent of eligible employees use flexible spending accounts. You and your spouse can each stash up to $2,550 in the healthcare account and $250 a month each for parking and mass transit.
3. State sales taxes. You must choose between deducting state and local income taxes, or state and local sales taxes. Many retired taxpayers may be able to take advantage of the sales-tax option. If you purchase a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in IRS tables for your state. The same goes for home building materials you purchased. These items are easy to overlook.
4. Job-hunting costs. If you’re among the millions of unemployed Americans who were looking for a job in 2015, you can deduct expenses for looking for a position in the same line of work. Qualifying expenses include résumé costs, employment agency fees, transportation costs, and food and lodging if your search took you away from home overnight. These expenses are deductible even if they didn’t result in a new job being offered or accepted.
5. Moving expenses to take first job. Although job hunting expenses are not deductible when looking for your first job, moving expenses to get that first job are deductible. You get this write off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including mileage and tolls. Overnight lodging is also deductible.
6. Refinancing points. With interest rates so low over the past few years, lots of homes have been refinanced. When you refinance a mortgage, you have to deduct the points over the life of the loan (i.e., 30 years). On a second refinance or sale, you get to deduct all the remaining points not yet deducted in that year.
7. State tax you paid last year. Did you owe tax when you filed your 2014 state tax return? Remember to include that amount with your state tax deduction on your 2015 return, along with state income taxes withheld from your paychecks or paid via estimated-tax payments.
8. Bad debt. Ever loan someone money and not get repaid? You could qualify for the non-business bad-debt tax deduction for individuals. You can claim a loss up to $3,000 per year. Also, you can carry forward any amounts you did not claim in the current year.
9. Excess Social Security.
If you worked for more than one employer, and each took Social Security taxes out of your paycheck based on what they paid you, you may claim a refund of the excess on your return if your yearly wages exceeded $118,500.
These are just some of the tax-saving opportunities that taxpayers often overlook. Spending a little time planning for these early in the tax year can reap large savings when you file.