It’s easy to overlook tax deductions buried deep within the thicket of the U.S. tax code. Millions of Americans overpay their taxes every year by overlooking tax deductions. But you don’t have to spend hundreds of dollars on an accountant to find tax deductible expenses.
The incredible value of tax deductions
About 46 million U.S. taxpayers who choose to itemize their tax deductions prevent nearly $1 trillion dollars from falling into the hands of the government. About 85 million taxpayers use standard deductions to protect another $700 billion. Most people who use standard deductions are probably cheating themselves out of money that’s there for the taking in the U.S. tax code. Even those who take advantage of tax deductions such as interest paid on mortgages and student loans, real estate property taxes and state sales taxes could be giving the government extra money.
Career-related tax deductions
With the U.S. job market as bad as it has been lately, one of the most commonly overlooked tax deductions is job hunting expenses. For job hunters with total itemized deductions greater than 2 percent of adjusted gross income, job hunting expenses can be deducted. However, the job search must be in the same industry as the taxpayer’s previous position. First-time job hunters can’t deduct job hunting expenses, but if they move more than 50 miles to take that first job, moving expenses can be deducted, including 14.5 cents per mile. For taxpayers going back to school to change careers, $2,500 of college tuition can be claimed as a tax credit. While a tax deduction lowers taxable income, a tax credit lowers the taxes owed. Single taxpayers making $80,000 or less or married couples making $160,000 or less are eligible for the tuition tax credit.
More overlooked tax deductions
Taxpayers often overlook tax deductions related to home and family. As more Americans take care of their elderly parents, they become eligible for a substantial tax deduction. If they provide more than half their parent’s financial support and that assistance costs them more than 7.5 percent of adjusted gross income, they qualify for a dependent parent deduction. U.S. automakers have been offering a lot of incentives, and for those who bought a new vehicle in 2010 and earned $135,000 or less, the sales tax can be deducted, even without itemizing deductions. Green energy tax credits worth up to $1,500 are available for taxpayers who invested in energy-efficient home improvements. Finally, don’t overlook the Making Work Pay tax credit. The 2010 tax year is the last chance to take advantage of the Making Work Pay tax credit. This tax credit is often taken care of by employers who withhold less, but singles can take $400 off their tax bill and married couples can save $800 by completing Schedule M along with the 1040 form.