According to Kiplinger.com, about 45 million Americans itemize their 1040s, claiming more than $1 trillion worth of deductions. Another 92 million taxpayers claim about $700 billion using standard deductions. Many of us still may be paying Uncle Sam too much.
While many have become accustomed to claiming certain tax deductions, like those associated with IRA contributions, keeping track of the ever-changing tax laws determining what kinds of deductions are and are not allowable is another matter. By using a professional tax preparer and educating yourself on current tax laws, you might be able to maximize your return. Here are some updates on deductions that may help you get the most from your tax return:
Out-of-Pocket Charitable Contributions
Most of us track large charitable donations, but don’t forget to record smaller charity-related contributions, such as out-of-pocket costs incurred while doing charity work. Examples include purchasing ingredients for a dish prepared for a nonprofit organization’s soup kitchen, or stamps you bought for a school fundraising mailing. Tip: Keep receipts. If your contribution totals more than $250, you’ll need an acknowledgement from the charity documenting your support.
You may be able to deduct interest on a qualified student loan, as long as it was solely for qualified higher education expenses. Generally, the amount you may deduct is $2,500 or the actual amount of interest paid – whichever is less. You may only claim the deduction if you:
• paid interest on a qualified student loan in the 2012 tax year
• are legally obligated to pay interest on a qualified student loan
• filed as “not married filing separately”
• have a modified adjusted gross income less than a specified amount (set annually)
• are not (and your spouse, if filing jointly) claimed as dependent(s) on another return
If you searched for a job in the same profession as your most recent occupation, you may be able to deduct some of your job-hunting expenses, even if you didn’t secure a new job. Costs include transportation, food and lodging, employment agency fees, business-related printing overhead and more. There are variables, so consult your tax preparer before filing. You can also read these seven things the IRS wants you to know about deducting costs related to your job search.
Homeowners often refinance because of the saving associated with the new terms, like the low rates associated with NVE’s 7-year fixed mortgage. If you refinanced in 2012, remember these two things:
General Tax Benefits – At the beginning of a mortgage, you’re typically paying more for the interest than the principal; in many cases you can deduct all your home mortgage interest.If you’re paying more interest in those early years of a new loan, a refinance means a lower tax liability.
Points – Deducting the cost of points for a refinance can be tricky. Instead of deducting all the cost of points at once – which is what you do with your first mortgage – you’re required to spread out the deductions over the loan term. That is, unless you sell or refinance again, at which point you will be able to fully take advantage of the unused fraction of points.
Tax exceptions and laws change from year to year, and from state to state. So, it is important to always consult with your tax preparer before making any claims or deductions.