COMMONLY MISSED ITEMS DURING TAX PREPARATION
March 25, 2015
The month of April brings with it smiling thoughts of sunshine and of May’s colorful blooms of flowers, until we remember that our tax returns are due on April 15. Taxes are a part of life, but there are some common things which many miss when working on their tax preparation. Taking advantage of the all of the tax savings and credits which are available can help to put some money back in your pocket and put the smile back on your face.
Deductions or Credits Commonly Missed During Tax Preparation
Job Hunting Expenses
No matter what they say on TV or in the newspapers, there are still a lot of people looking for work. Anyone who has found themselves looking for work knows firsthand that job hunting isn’t without its costs. Adding insult to injury, these costs come at a time when income has been reduced or perhaps is nonexistent. The good news is that many of these job hunting expenses can be claimed on your taxes. There are some rules and parameters, of course, but some of the allowances are quite generous and can add up to big savings. If you had been searching for a job in the same line of work in which you had been working previously, job hunting expenses can be deducted as a miscellaneous expense when itemizing. If you kept good records of your job hunting expenses or if the information can be reconstructed through other sources (e.g. bank statements or credit card statements), this information can be used to calculate and document your expenses. You can write off these expenses even if you weren’t successful in finding work, however miscellaneous expenses can’t exceed the 2% threshold of adjusted gross income.
Deductible expenses which shouldn’t be overlooked in tax preparation might include:
Transportation costs, with a 56¢ per mile allowance when using your own car while searching for work and interviewing. Parking and toll expenses are also deductible, as are cab fares
If your job search requires travel and overnight stays, food and lodging expenses are deductible.
Fees paid to employment agencies and expenses incurred with personal marketing materials such as resumes, business cards, advertising costs, and the cost of postage are all also deductible.
Tax deductions are great, however the amount of savings is determined by your tax bracket. On the other hand, a tax credit has a dollar for dollar impact on the bottom line. The childcare tax credit allows the opportunity to save between 25% and 35% of your child care expenses while you are working.
Some employers also offer some sort of child care reimbursement. If this is the case, you can’t use both. The reimbursement from your employer will likely disqualify you for the credit, but is often a better deal financially. It may be possible to claim a partial credit dependent on the amount paid by your employer. If there is no employer plan in place, as is the case for many people, the full amount of the credit may be available. Just bear in mind that this credit is intended for work related childcare expenses. If Little Billy wants a new bicycle, you wouldn’t be able to claim that expense. The rules governing the childcare credit can be complex, but the savings can be sizeable. Consult with a tax preparation expert on this one.
American Opportunity Credit
Another item often missed during tax preparation is the American Opportunity Credit. This tax credit relates to qualifying college expenses. Again, this is a credit not a deduction, so the savings can be more significant. A maximum credit of $2500 per student is available in each year, provided their situation meets certain qualifying requirements. The tax credit is also affected by income, where in the case of an individual with a modified gross income exceeding $80,000 would not be eligible, nor would a couple filing jointly with a combined income above $160,000. However if you meet the other eligibility requirements of the credit, and your income is below those levels, the savings from this one can be a big. Most other credits, when they apply, are able to reduce the tax liability all the way down to $0, but the American opportunity credit can actually create eligibility for a tax refund. Again, the rules can be difficult to navigate and it is suggested to consult with the tax preparation specialist.
Some limitations and exclusions may apply with tax credits or deductions, and there are surely some other tax saving opportunities which are often overlooked. Consult the experts in tax preparation in Vancouver, WA and learn ways that you can save.