Are you finishing up your income taxes—and wishing you had more deductions? You may be in luck. Many tax deductions go overlooked every year by taxpayers who have no idea they exist. Here are seven of the most overlooked tax deductions. Can you use any of them this year?
Student-Loan Interest Paid by Your Parents
As a rule, you can deduct interest only if you are the one legally required to repay the debt. But student loans are different. If your parents pay back your student loans, the IRS treats the payments as if the money were given to the child who then used it to pay the debt. So, as long as you are no longer claimed as a dependent on your parents’ tax returns, you can deduct up to $2500 of student-loan interest paid by your parents on your behalf. And you don’t even have to be itemizing to take advantage of this. Parents cannot claim the interest because they aren’t the ones liable for the debt. This deduction is subject to a phase-out, which means the amount of the deduction gradually decreases and eventually phases out completely. Check irs.gov for complete details.
American Opportunity Credit
The American Opportunity Credit replaces the Hope Credit. The biggest difference is that the AOP is good for all four years of college. This is a tax credit based on 100% of the first $2000 you spend on qualifying college expenses and 25% of the next $2000. Students can receive a maximum annual credit of $2500. Your modified adjusted gross income needs to be $80,000 or less ($160k for married filing jointly). Unlike most credits, if the American Opportunity Credit exceeds your tax liability, it can trigger a refund.
College Credit for Older Learners
College credits aren’t just for the young anymore. And they don’t just apply to undergrads. The Lifetime Learning credit can be claimed for an unlimited number of years to offset higher education for you—not just for your children. You may claim a credit of up to $2ooo/year, based on 20% of up to $10,000 you spend on post-high-school courses that provide you with new or improved job schools. Even classes taken in retirement at a vocational school or community college are eligible. Income restrictions do apply, but they are probably higher than you think. Learn more at irs.gov.
It’s easy to remember to deduct large gifts that you make by payroll deduction, but don’t forget the little things you do. Whether it’s purchasing supplies for your school’s PTA or buying extra groceries to donate to the food bank, keep track of those expenses and deduct them on your tax return. And if you drive your car for charitable events, you may deduct 14 cents/mile.
Refinancing mortgage points
When you buy a house, you get to deduct points paid to obtain your mortgage all at one time. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Doesn’t seem like much, but why throw it away?
Also, in the year you pay off the loan—because you sell the house or refinance again—you get to deduct all the points not yet deducted, unless you refinance with the same lender.
Almost everyone knows they can write off a big chunk of moving expenses when they relocate to take a new job. But did you know you can also take a write-off when you’re moving to take your first job. If you’ve recently graduated from college and you need to relocate for your work, you may be eligible for this tax break. Check out all the details at irs.gov.
Hobby expenses can be claimed as “other miscellaneous deductions.” While your hobby may take up as much time as a business, it doesn’t qualify your for any small business tax deductions. However, you can deduct some of your hobby expenses—up to the amount you generated in income from your hobby. If you sold $500 worth of photographs this year, but spent $1000 on photography supplies, you can deduct $500 of those expenses. This can be very helpful if your small business has not generated a profit in three years, because the IRS will then decide your business is a hobby.
For more information on these and other tax deductions that can save you money this year, visit IRS.gov. For help planning your financial strategy to pay less taxes next year and in the years to come, give us a call at Roper Insurance. We’ll be happy to connect you with one of our financial-planning partners to help you maximize your income—and your deductions.