Filing your 2013 taxes means digging through your calendar, rustling up a bunch of receipts and trying to account for everything that might qualify as a valid deduction or tax credit. To help nudge you in the right direction, here are some legal loopholes you may want to take advantage of.
Remember Job Search Deductions
If you landed a new job last year – in your same occupation – you can generally deduct the expenses that exceed 2% of your adjusted gross income. That can include employment agency fees, resume preparation and mailing – and sometimes travel and transportation expenses. But take note: This doesn’t apply to expenses related to looking for a job in a new occupation – or even a first-time job. And don’t try to deduct expenses that have already been reimbursed.
Another exception to this deduction is one that just doesn’t seem quite fair: You can’t deduct job search expenses if there has been “a substantial break between the end of your last job and the time you began looking for a new one,” according to the IRS.
Maximize Medical Deductions
Unless you were in the hospital or incurred some significant medical expenses last year, a medical deduction is hard to qualify for. But if you have been ill, it can be a substantial tax break. For taxpayers under the age of 65, the medical deduction has risen for 2013 to expenses paid in excess of 10% of your adjusted gross income. Taxpayers over 65 can still claim expenses over 7.5% of AGI, until 2017.
Young Taxpayers Beware
Young adults moving from part-time to full-time employment can often get tripped up in the transition. When filing their first return after getting a full-time job, they may find they owe tax, rather than getting that “bonus” tax refund check from the IRS. After years of claiming “exempt” withholdings on their W-4 they might get caught in a tax trap of insufficient withholdings.
If you are single, claiming yourself as a deduction should hold out the proper amount of taxes, while taking ‘zero’ deductions can often trigger an annual tax refund, depending on your income and individual tax situation. While it’s usually not a good idea to let the government hold your money without earning even a tiny bit of interest, so many taxpayers love their refunds.
Don't Forget Donations
A tax break many Americans overlook: the deduction for clothing and household goods donations.
You can deduct either the cost of the item, or the prevailing fair market value – whichever is lower. If your donation is over $500, you are required to supply more detailed information, including the date of the donation, the original cost and fair market value.
Driving Business Deductions
Business owners need to take every deduction deserved too. Some entrepreneurs just don’t have the time – or the desire – to learn what tax breaks and credits they can earn. If the recession has taken its toll, you may have business losses that can be used to offset other income. And the home office deduction is also a favorite tax break, but can be tricky. These are scenarios when a good tax advisor can be well worth the cost.
If you haven’t been carrying a mileage log in your car, this may be a good time to start. Business miles can really add up, and the IRS allows 56.5 cents per business-purpose mile driven, but taxpayers always have the option of calculating the actual costs of using their vehicle, rather than just using the standard mileage rates.
When Work and Home Expenses Commingle
If you’re a small business owner, or work from home, it can sometimes be a challenge to separate personal expenses from legitimate business expenses.
For example, if you buy something that is used in your business, but sometimes personally as well, you must divide the expense by the proportion between the two. The IRS offers this publication for more information: Publication 535, Business Expenses (Chapter 4).
As you tend to your 1040, you may need a question answered. If so, some local IRS offices offer consultations, and live phone support is available, too. The official website IRS.gov may not be very pretty to look at but offers some extensive resources.
Hal M. Bundrick is a Certified Financial Planner™ and former financial advisor and senior investment specialist for Wall Street firms. He writes about personal finance and investing for NerdWallet. Follow him on Twitter: @HalMBundrick
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