Five Overlooked Tax Deductions

Five Overlooked Tax Deductions

There is one thing that the vast majority of Americans have in common, regardless of the income bracket he or she occupies: a desire to pay LESS in taxes.

But contrary to popular belief, spring doesn’t have to be a painful for the American taxpayer. There are many overlooked tax deductions that people miss out on every year. These missed tax deductions unnecessarily cost Americans tens of millions of dollars. Until now, anyway! With April 15 still several months away, it’s time to begin identifying some of those overlooked tax deductions so you can start planning how you’ll save money instead of giving it to the IRS. Here are five tax deductions often overlooked by Americans:

-Clothes and other non-cash items donated to charity. Are you planning to give a closet full of old clothes to Goodwill, or hoping to upgrade your living room furniture and give the displaced furniture to the Salvation Army? Make sure to ask for a receipt detailing how much you donated. Keeping track of these overlooked tax deductions and establishing a paper trail will be particularly important in case you get audited, because the IRS began requiring receipts for charitable donations in 2007.

-Refinance your home. Low interest rates have inspired many homeowners to refinance their houses. The “points” that homeowners pay to refinance their property are allowed to be deducted-at $10 per month-until the new loan has been paid off. If you have a 20- or 30-year loan, that $120 deduction per year will save you thousands of dollars.

-Health bills: the big bugaboo for Americans. High insurance premiums and healthcare costs can come in handy at tax time, especially among the older population and those who are self-employed. A person is eligible for tax relief from health insurance premiums if his or her medical bills are more than 7.5 percent of their adjusted gross income. The self-employed don’t have to hit that number: every single health insurance premium included in adjusted gross income can be deducted. This won’t make the short-term pain-pun intended-of high medical bills any better but at least these missed tax deductions will provide some relief down the road.

-Expenses for educators. An overlooked tax deduction for teachers is money spent on school supplies. Teachers and educators can receive above-the-line deductions as high as $250 for educational materials-books, computer equipment and other materials-purchased during the calendar year. Everyone who works as an educator in elementary schools or middle schools qualifies for these oft-missed tax deductions.

-Expenses for college students. Meanwhile, on the other end of the spectrum, if you or your spouse is returning to college or getting an additional degree, and your adjusted gross family income is no more than $130,000 (or $65,000 for a single filer), then you’re entitled to as much as $4,000 in an above-the-line deduction for school expenses. Other overlooked tax deductions for students include the American Opportunity Credit (worth up to $2,500 for undergraduate students) and the Lifetime Learning Credit (worth up to $2,000 for postgraduate students).