The key to keeping your return bill low is using as many tax deductions as possible; there’s no point in paying more than is necessary every April 15th. There are many deductions available, though, including ones on the books but not readily known to most people. Being unaware of these tax deductions does not automatically disqualify you from using them. Here is a short list of breaks you can use moving forward:
1. Health Insurance Premiums – One break that most people are currently unaware of is deducting their health insurance premium costs. Taxpayers can usually deduct medical-related expenses exceeding 10% of their adjusted gross income (AGI). For example, let’s assume your AGI is $50,000, and you have $9,000 in qualified medical expenses. This tax break will let you deduct the portion of those expenses that exceed $5,000, leaving you with a healthy $4,000 deduction.
Before you start celebrating, though, there is a catch. If you have employer-provided health insurance, and they pay part of the premium, then you cannot deduct the portion they pay. You also may be denied if you use pre-tax dollars to paying your share. That’s because it already reduces your taxable income.
If you are self-employed, the rules are considerably better. You don’t have to worry about exceeding the 10% threshold; don’t have to itemize deductions, and if you end up reporting profit then you may be able to adjust your overall taxable income in a downward fashion. You can do this by deducting your premium as well as ones for long-term policies covering you and your various dependents. More details are available in IRS Publication 535. Even without insurance premiums to use, you may also have sufficient qualifying medical expenses to net a significant deduction. Checking with a tax professional is recommended to know for sure.
2. Moving Expense Tax Deductions – Another surprising deduction available to taxpayers is claiming moving expenses. If you have moved because of either an employment change, business relocation, or started a new business /job, then you can potentially deduct moving expenses. Again though there is a catch – you need to meet three requirements before making the claim.
First, the move must happen no more than one year before starting work at the new location. Second, the new work address has to be a minimum of 50 miles further away from where you lived than your former employment’s address. Third, you must have full-time shifts at the new job for a 39-week minimum during the first 12 months at the new address. Self-employed people must work for a 78-week minimum during the first 24 months.
The biggest reason and benefit to use moving expenses as a tax deduction are because you can use them even without itemization. To do so, you will need to fill out an IRS Form 3903, but the deduction is included in the adjusted gross income calculation on your 1040 return’s first page, taken directly from gross income. Given how expensive and stressful moving is, having a tax deduction partially covering those costs is helpful savings-wise.
3. High Education Costs Beyond Dependents – The IRS has various education tax deductions available to help make college more affordable. Most taxpayers though assume that these only apply to college-age dependents of theirs. Fortunately, this is not the case. You, or your spouse, can access the Lifetime Learning credit at any age. This deduction can potentially shave up to $2,000 off your bill at tax time.
As with any tax credit, there are restrictions in place, so double check that you are eligible for it. Here are the three major ones to consider:
• The expenditure needs to come from an eligible educational institution.
• Your modified adjusted gross income must be below $65,000 if filing as single. If you are filing jointly with someone, then the level is raised to $130,000.
• The credit itself can only help offset specific educational expenses such as tuition, books, supplies, activity fees, etc. However, room and board are not allowed as an included expense.
If you meet these criteria though then, you can potentially subtract 20% of the first $10,000 in expenses, leaving you a $2,000 tax credit to claim. As with any planned deduction, make sure to check the IRS’ fine print before making the claim. That said, this is an excellent way to continue one’s education and save money doing so.
4. Home Repairs and Maintenance – If you work from home in a dedicated office, then you may already know about the tax break available for that. However, you can also deduct some home repair and maintenance costs too. For example, for maintenance costs such as roof repair, gutter cleaning, exterior painting, etc. can be claimed at a percentage on your taxes. For work done adjusting the actual office itself, those expenses can be deducted in their entirety. Start looking at whether or not your home office needs some sprucing up; it can help you out at tax time.
5. Financial Planning – If you pay for financial planning and relevant advice, then you may be able to write off those costs on your tax bill. If you itemize your tax planning and investment costs, and those costs exceed 2% of your adjusted gross income, then anything above and beyond that threshold is deductible.
These expenses include your CPA and tax software fees, financial advisory fees, automatic reinvestment service charges, broker-associated costs, etc., even relevant publication subscriptions. There are exceptions of course, such as trading commissions and investment advisory fees for tax-exempt revenue. Those exceptions aside, there is still plenty of room for very sizable tax deductions from your financial planning expenses.
Once again, working with a tax professional to check the fine print associated with these various deductions is recommended first and foremost. This list is only the tip of the iceberg.
Toby Mathis, is a founding partner of Anderson Law Group and current manager of Anderson’s Las Vegas office. He has helped Anderson grow its practice from one of business and estate planning to a thriving tax practice and national registered agent service with more than 18,000 clients. In his work as an attorney, he has focused exclusively in areas of small business, taxation, and trusts. In addition, Toby was the past director and host of the longest-running local business radio program on KNUU in Las Vegas “The BOSS Business Brief”. He sits on the board of directors for several companies and was recently appointed to the local board of Entrepreneurs’ Organization, a worldwide association of owners of successful businesses. He has authored more than 100 articles on small business topics and has written several books on good business practices, including first and second editions of Tax-Wise Business Ownership and 12 Steps to Running a Successful Business.