Use these lesser-known deductions if you qualify and cut your tax bill.
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Ben Franklin said death and taxes are certainties, but that doesn't mean you should pay a penny more in tax each year than you are required to. We asked five of our sharpest minds to each give us a tax deduction many people may not know about.
While you may not qualify for all of them, there's a good chance at least one of these lesser-known deductions could be worth money to you come April 15.
Health insurance premiums
Selena Maranjian: One tax break many people don't know about is that they may be able to deduct the cost of their health insurance premiums. Taxpayers in general may deduct medical expenses that exceed 10% of their adjusted gross income (AGI). (If you thought the threshold was 7.5%, it was -- until a few years ago. It remains 7.5% through 2016 if you or your spouse is older than 65.) So, for example, if your AGI is $65,000 and you have $8,000 in qualified medical expenses, you can deduct the portion of those expenses that exceed $6,500 -- giving you a welcome deduction of $1,500.
There's a catch, though. If your employer provides health insurance for you and pays part of your premium, you cannot deduct the portion paid by your employer. You also may not be able to deduct the portion you pay if that portion is paid via pre-taxdollars (i.e., deducted from your paycheck on a pre-tax basis). That's because if it reduces the pay on which you're taxed, it has already provided a tax benefit. Some folks, though, don't pay their portion of premiums with pre-tax dollars. In this case, you'll see your premiums paid listed in Box 1 of your W-2 form.
The rules are a little different -- and better -- for the self-employed. They don't have the 10% threshold to exceed and they don't even have to itemize deductions to take this one. If you're self-employed and are reporting a profit for the year, you may be ableto adjust your taxable income downward, deducting your health insurance premium as well as premiums for qualifying long-term care policies, for yourself, your spouse, and dependents. Learn more in IRS Publication 535.
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Without or without your health insurance premiums, though, you may have sufficient total qualifying medical expenses to give you a usable tax deduction. Don't leave such money on the table.
Dan Caplinger: One deduction that often comes as a surprise to taxpayers is writing off moving expenses. If you moved because of a change in your job or the location of the business you work for, or if you started a new job or business, then you can deduct moving expenses if you meet three main requirements. First, the move must occur no more than a year before you start work in the new location. Second, your new place of work must be at least 50 miles further away from where you used to live than your old place of work was. Lastly, you have to keep the new job full-time for at least 39 weeks during the first 12 months after arriving in the new location. Self-employed people must also work for at least 78 weeks during the first 24 months in the new location.
The biggest benefit of moving expenses is that you can deduct them even if you don't itemize. You'll need to fill out IRS Form 3903, but the deduction comes directly off your gross income and is baked into the calculation of adjusted gross income on the first page of your 1040 return. Given how expensive a move can be, getting a tax deduction for costs related to it can produce much-needed savings.
Higher education expenses for more than just dependents
Brian Feroldi:The IRS has put a number of helpful taxdeductions in place with the aim of making going to college more affordable, but many tax filers assume they can only apply if they have a dependent that is of college age. If you've made that assumption and have sought out higher education, you'll be pleasantly surprised to learn that you or your spouse can take advantage of the Lifetime Learning credit at any age, which can be used at shave up to $2,000 off of your total tax bill.
Like any tax credit, the IRS has put in place a number of restrictions in place to make sure not everyone can qualify, so before you get excited, you'll want to check to make sure you are eligible. There are plenty of details to consider, but the three big ones are:
- The expense must have been generated at an eligible educational institution.
- Your modified adjusted gross income is less than $65,000 if you are single, or $130,000 if you are married filing jointly.
- The credit can only be used to offset a handful of education-relatedexpense like tuition, student activity fees, supplies, or even books, but you can't claim it against personal expenses like room and board.
If you meet this main criteria, then you could be eligible to subtract 20% of your first $10,000 in expenses, which adds up to a total tax credit of $2,000.
You'll want to make sure you (or your tax preparer) read through the fine print on the IRS's website before you claim this credit on your taxes, but if you wind up qualifying, this can be a great way to save some money this tax season.
Work from home? Deduct home repairs and maintenance
Jason Hall: If you work from home and have a dedicated office in your residence, you probably know you can get a tax break for that. But did you know you can also deduct a portion of home repairs and maintenance, too?
For instance, if you were to need to replace the roof of your home, you would likely be able to deduct a percentage of that expense. This also includes things like exterior painting, gutter cleaning, or other maintenance that is done to the whole home. You would also be able to deduct the entire expense for things done only to the home office, such as painting, repairing a light, or replacing flooring within that space.
The bottom line is, don't just deduct the common costs such as insurance, utilities, and property taxes -- there could be a lot more you can deduct related your home office each year.
Financial planning expenses
Sean Williams: Tax time is both the happiest time of the year for about 80% of tax filers who will be due a refund, and a horrific time of year for nearly all 100% of filers who'll be required to dig through every nook and cranny of their financial existence from the prior year. But if done right, deductions can help ease your tax burden.
One of the most overlooked tax deductions relates to financial planning. It's no secret that contributing to a 401(k) or a Traditional IRA can reduce your tax liability in a given year. However, what you might not know is that you can also potentially deduct expenses paid for financial planning and advice.
If your tax planning and investment expenses are itemized, and their cost exceeds 2% of your adjusted gross income, anything above and beyond that 2% AGI floor is deductible. This means the money you pay to an accountant, or for tax software, counts, as does the fee paid for the management of your retirement accounts if you have a financial advisor. Other allowable deductions might include calls to your broker, transportation costs to his or her office, and even charges for automatic reinvestment services. Even subscriptions to financial publications, including a newsletter subscription to The Motley Fool, would count.
There are a few things that don't count, such as trading commissions and investment advisory fees on tax-exempt income. However, the short story is that you could be overlooking a sizable deduction if you aren't keeping track of your financial planning expenses.
The article 5 Tax Deductions You May Not Know About Yet originally appeared on Fool.com.
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