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What You May Not Know About Tax Deductions

What You May Not Know About Tax Deductions

We’re all legally obligated to pay our taxes, but that doesn’t mean you should pay more than what you owe. Every year, taxpayers give their hard-earned money to the IRS just because they aren’t aware of all of the possible tax deductions they can take. Odds are, you’re one of them.
By being aware of commonly missed tax deductions, you may be able to keep more of your money in your own bank account, rather than Uncle Sam’s.


Money spent looking for a job

Millions of Americans were looking for a job in 2015, but how many knew they could write off expenses related to their job hunt? Whether you’re successful in landing that job or not, you should always keep track of job-search expenses because you can deduct those costs as miscellaneous expenses when itemizing deductions.

Deductible expenses include transportation, including parking and tolls; food and lodging expenses if your search required you to be away from home overnight; cost of printing resumes, postage, business cards, employment agency fees and almost anything else related specifically to finding a job.

Moving expenses required for your job

Perhaps you managed to land a job that required you to move – your new employer must be at least 50 miles away from your old home – and your employer doesn’t pay that expense, you can write off your moving expenses.

If you qualify, you can deduct the cost of moving yourself and your household items to your new destination. If you drive your own car to move, you can also deduct mileage as well as any parking fees and tolls.

Cost of making your home more energy efficient

Energy efficiency upgrades to your home may also give you a tax break. For the 2016 tax year, the credit is currently 10 percent of what you paid, up to $500. For example, you may be able to claim a 10 percent credit for things like adding qualified energy efficient insulation, doors, windows or a roof, as well as installing energy-efficient heating or air-conditioning systems.

Taking care of a parent

Just about everyone knows to claim children as dependents, but most don’t realizing that caring for an elderly or disabled parent may mean that you can claim them as a dependent. The relative doesn’t necessarily have to live with you either. Taking care of other relatives may also qualify, such as a grandparent, aunt, uncle, niece or nephew.

Currently, to claim a dependent, certain criteria must be met, such as a limit on the dependent’s income, and the amount of time you spent caring for the dependent during the year (you must have provided at least half of their support).

You may also be able to deduct any medical expenses related to their care, as well as costs paid for the care of your dependent while you were working or looking for work.


Be aware of which tax deductions can increase the odds of being audited

While you should never be afraid to take a deduction earned legitimately (with records to back it up), you should also be aware of which deductions increase the odds of an audit, and proceed more cautiously.

Taking a very large deduction, which means one that makes up a high percentage of your income, could trigger an audit, no matter what type of deduction it is. For example, if you earn around $30,000 a year and claim you’ve donated $10,000 to charity, the IRS is probably going to be curious. A $10,000 donation made by someone who makes over $100,000, on the other hand, probably won’t attract the agency’s attention.

If you earn money from a hobby, say dabbling in freelance writing, or selling handcrafted items on Etsy, you have to report it as income on your tax return, You can also deduct expenses related to your money-earning hobby. The risk comes with reporting more expenses than earnings.

The IRS also raises an eyebrow when it comes to certain business expenses like travel and entertainment. If you’re writing off a lot more than other people who have the same occupation, you may be flagged for an audit.

 

 

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