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With just days remaining before we turn the page on 2016, it's once again time for Americans to seriously start thinking about the upcoming tax season. Even though a majority of Americans will wind up netting a federal tax refund from Uncle Sam come April, some taxpayers may be shortchanging themselves by overlooking some very common and juicy deductions and credits.
What tax deductions and credits am I talking about? Believe it or not, they have nothing to do with your home office, your house, or your children. Your key to a healthy tax deduction or credit this year could be sitting in your garage right now: your car.
In no particular order, here are eight ways your car can drive you to big tax credits and deductions when you prepare your 2016 tax return.
1. Hybrid/electric vehicle tax credit
One of the biggest tax credits available to those of who who've purchased a plug-in hybrid vehicle, or an electric vehicle (EV), is the Electric Vehicle Tax Credit (remember, credits reduce your liability on a dollar-for-dollar basis, and are thus more useful than deductions). The federal tax credit for electric vehicles is a flat $7,500 in 2016, whereas it ranges from $2,500 to $7,500 for plug-in hybrids. To find out how much federal tax credit your EV or plug-in EV might qualify for, Edmunds.com has a handy list.
However, it's important to understand that this doesn't mean you're entitled to the maximum $7,500 federal tax credit. Only taxpayers with tax bill of $7,500 or more can receive the flat $7,500 credit. If your tax bill is less than $7,500, you'll only be eligible to take a credit equal to what you owe, and Uncle Sam won't be cutting you a refund check for the difference.
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2. Mileage deduction for self-employed vehicle use
If you're self-employed or a freelancer, then using your vehicle for business can result in a mileage-based tax deduction. In 2016, you'll be able to deduct $0.54 per mile for vehicle use that pertained to your business. Keep in mind that it's important for you to maintain good records of your mileage in case the IRS questions your deduction, and it's critical that you separate personal use from business use in your record keeping.
3. Unreimbursed business expenses
By a similar token, you may also be able to deduct business expenses if you're employed and were unreimbursed by your company. For example, if you're required to attend a meeting that's a few cities over, and your company fails to compensate you for the mileage driven, you can claim the same per-mile deduction as noted above ($0.54/mile) in 2016 as long as you've kept clear records and can differentiate your business use from personal use.
4. Certain health-related travel expenses
Another vehicle-based tax deduction comes into play if your medical expenses are higher than 10% of your adjusted gross income (AGI) in 2016. For those of you over the age of 65, or if you turned 65 in 2016, you'd also qualify if your medical expenses were higher than 7.5% of your AGI this year (this exemption ends on Dec. 31, 2016, and jumps to 10% of AGI for everyone, regardless of age, beginning in 2017). Mileage to and from your provider, including parking fees, can be deducted. Just keep in mind that medical mileage deductions differ from business mileage deductions. In 2016, medical mileage deductions are earned at a rate of $0.19 per mile, and like always, you'll want to keep clear records that can be distinguished from non-medical use.
5. Transportation expenses for volunteer work
Using your vehicle for charitable or volunteer work could net you a $0.14-per-mile tax deduction. Not only are you allowed to write off mileage while performing charitable work, but parking fees and tolls can be deducted as well. Once again, ensure that you have clear records of your volunteer mileage in case the IRS asks to see it.
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6. Mileage to and from a rental property
Do you own a rental property? One little-known tax deduction that you may qualify for involves deducting the mileage to and from your rental property to maintain it, collect rent, or simply check on it. The IRS does not, however, allow you to deduct mileage to and from your rental property to upgrade the property. The cost of improvements to your rental property is recovered by taking depreciation.
7. Job-search-related mileage deduction
According to a TurboTax interview with Andrew Schrage, the co-owner of MoneyCrashers.com, you may also be able to deduct mileage tied to a new job. Per Schrage, if you wind up moving to a new home because of a job, and your new job is at least 50 miles or more away from your old job, you'll be able to deduct the miles driven while moving at a rate of $0.19 per mile in 2016.
8. Casualty loss from a non-at-fault auto accident
Last, but not least, if you were involved a car accident in 2016 that wasn't your fault, and your auto insurance provider failed to reimburse you for the total cost of damages to your vehicle, you may be able to deduct the difference as a casualty loss. A casualty loss may also be taken in instances where a vehicle has been repaired, but it is no longer worth as much because of its accident history.
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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
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