Top 10 Tax Deductions Often Overlooked

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Category: Individual Taxes

Written by Madeline Delanni

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So you've decided to itemize rather than use the standard deduction. Here is a list of the most common tax deductions overlooked by folks who opt for the standard deduction. Considering both options is smart and worth going through the motions twice, once for standard deductions and one for itemized to see which works best for you and your personal tax situation:

1. Charitable Contributions
If you have been charitable in 2011, and have saved your receipts, you are eligible to include them. On the other hand, if you donated some items from your home to Salvation Army or a similar charity, the value of your donated items is also deductible if you have a written receipt. With non-cash charitable contributions, the rule is: no receipt equals no deduction if you get audited.

2. Points on Refinancing
2011 was a big refinance year for many homeowners. If you refinanced your home in 2011, any points you paid to refinance can be deducted on a monthly basis over the life of the new loan. As an example, if you refinanced your mortgage on March 1, 2011, for a 20-year term, 10 out of 240 months will have passed by Dec. 31, 2011. If you paid $1,200 in points, you can write off $50 for 2011. And don’t forget that you can deduct $60 next year and continue deducting on until February 2021!

3. State and Local Taxes
State and local taxes for which you have been assessed are deductible. Consult your tax professional or use a tax software for more details.

4. Health Insurance Premiums
Health insurance premiums that you pay are deductible.  This may also include some long-term-care premiums based on your age and Medicare premiums you pay, and are potentially deductible.  Do remember that medical expenses have to exceed 7.5% of your adjusted gross income before they give you any tax benefit.

5. Retirement Tax Credit
The retirement tax credit is a good one for moderate income and low income taxpayers because it is a great incentive to save for retirement. And a credit reduces your tax bill dollar for dollar, so if you make a contribution to your retirement account, that money isn’t taxed now plus you get a deduction off your income. You can deduct as much as $5,000 ($6,000 if you’re 50 or older) in contributions to an IRA. See the IRS article for more on planning.

6. Energy Savings Home Improvement Credit
Energy credits are available for homeowners who installed alternative energy equipment, such as solar water heaters, geothermal heat pumps and wind turbines.  If so, you can take a credit of 30% of the total cost, with no cap through 2016. For a complete list of credits, see the IRS website.

7. Child Care Credit
A credit reduces your tax bill dollar for dollar. Publication 503 explains the tests you must meet to claim the credit for child and dependent care expenses. It explains how to figure and claim the credit.

8. Education Expenses
Any interest that you have paid on your student loan for 2011 may be deducted, as well as some additional tuition related expenses. Check on the Lifetime Education Credit for more information.

9. Investment and Tax Expenses
Even tax-planning and investment expenses are deductible because they fall under miscellaneous itemized expenses.  With that said, the total of these expenses must exceed 2% of your adjusted gross income before you get any tax benefit. These expenses could include your employee business expenses, tax preparation fees and even the portion of your legal or accounting expenses that  relate to tax planning. Some examples would be the tax aspects of alimony, child support, estate planning etc.. When it comes to investment expenses, most of us remember our safe deposit fees, but if you paid any annual fees to a broker or other investment fees, those can also qualify.

10. Casualty Deductions
2011 was a year of many natural calamities. If the president declared your area as a disaster area, you may be able to claim your loss on either your 2011 or 2010 return. Refer to the IRS site for more specific information.

Remember, if you take the standard deduction, you cannot qualify for the above deductions. NOW is the time to determine which option is most beneficial for you. IRS Publication 17 is a helpful resource for individual tax filers. If you cannot make the decision for yourself, consult a tax professional or before e-Filing/mailing, have your return reviewed by a tax professional to get the best possible tax refund.

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