If the IRS owed you money, would you let them keep it? Of course not! But that’s what happens when you don’t claim all your tax deductions. The problem is that our tax code can be complicated, so there are several tax breaks that people just don’t know about.
With deductions, you can classify parts of your income as non-taxable, thereby reducing the overall amount you owe. When you file your taxes, you elect either a standard deduction or itemized deductions. The standard deduction is a flat amount based on your filing status. You can find what your standard deduction would be on the IRS website.
The other option is itemized deductions. With this method, you calculate the amount you spent on various deductible expenses. What kinds of expenses can be claimed as a deductible expense varies from state to state. Check in with your state’s .gov site to see which ones are available to you.
To get you started, we’ve explained a few of the best underused itemized deductions. Remember that you’ll need to be able to prove each of these expenses to claim them on your taxes. So keep those receipts!
- State Sales Taxes
According to Bankrate, if you take itemized deductions on your federal tax return form, you can either deduct your state income tax or your state sales tax. You can’t choose both. Like the federal government, some states require citizens to pay an amount equal to a percentage of their income. Sales tax is a percentage tax added to certain purchases. While many states have both sales and income taxes, some only have one or the other. For example, there is no state sales tax in Oregon and New Hampshire. Residents of Washington and Texas do not pay state income taxes.
The majority of people pay more in state income tax, so for most people, it makes sense to go that route. However, if you live in a state that doesn’t charge income tax or if you bought some big-ticket items (e.g., cars) that incur a lot of sales tax, you might want to deduct sales tax instead.
To claim this deduction, you can either tally up all your receipts from spending during the year or use this free calculator from the IRS to estimate the amount you paid in sales tax.
- Looking for a Job
If you searched for a job this year (that wasn’t your very first job), your job-hunting expenses could be deductible. Your new job must be in the same field as your most recent position. For example, if you worked in PR, you can deduct the expenses of looking for another PR job, but not if you decided to become an accountant.
If you qualify, you can deduct travel costs, lodging, employment agency fees and the cost of putting together your resumes, business cards, ads and anything else you used.
- Education Expenses
Through the Lifetime Learning Credit, you can get a tax credit of up to $2,000 a year for spending money on post-high school classes. A tax credit is an amount you can use to offset tax liability. For example, if you have to pay $10,000 in income taxes, and the credit covers $2,000, in the end you would be liable for only $8,000.
The credit applies to classes taken by you, your spouse or your children. The credit also applies to vocational training at your community college, professional training or even college classes taken for fun during retirement.
If you moved for a job, you could deduct the moving expenses. To be eligible, you must be either starting a new position or have been moved to another location by your current organization. Unlike with job-hunting costs, you can still use this deduction if you are switching industries. To qualify, your job must be at least 50 miles away from your old house and your move must be closely timed with the change in job location. Then you can deduct the cost of the movers, transportation, hotel lodging and storage.
- Donations to Charity
Most people know that if you make a cash donation to charity, it’s tax deductible. However, as TurboTax notes, there are other ways to get a charitable deduction. If you donated any supplies or materials to a charity, you can also deduct the value of those items.
You can even deduct your travel expenses for getting to the charity’s headquarters or event and any other out-of-pocket expenses, like buying a uniform. If you hire a babysitter for your kids so you can volunteer, that cost is also deductible. However, you can’t deduct the value of the time you spend volunteering.
- Financial Planning and Tax Preparation
If you’ve hired a financial planner or tax preparer, their fees may be tax deductible. That’s right — you can get important financial advice while receiving tax deductions!
A tax preparer’s fees are generally always deductible, but you can only deduct fees incurred during the year of the return you are filing. So, while preparing your 2016 tax return in 2017, you can only deduct fees you paid in 2016.
Stop paying more than you have to in taxes. While preparing your tax return, be sure to ask your tax preparer about these lesser-known deductions. If you are filing on your own, make sure to consult your state’s tax collection agency for information on deductions in your state.