Minimizing the amount of tax you pay means more money for paying off debt, buying a house, investing or even splurging. Uncle Sam offers a range of deductions and credits -- but you need to know what they are in order to take advantage of them. Before you file your return, make sure you haven't missed any commonly overlooked tax deductions.
In some instances, the mileage you put on your car can count as a tax deduction. For example, if you drive to help at a soup kitchen, you can include those miles as part of your charitable expenses deduction. Similarly, if you drive your baby to the doctor, those add to your medical expenses deduction. The mileage rates vary from year to year.
Student Loan Interest
You can deduct up to $2,500 of student loan interest paid each year, provided you are responsible for the loan, the loan was used for educational expenses and your income does not exceed the annual limits. If the loan is in your name, you deduct the interest even if mom or dad pays for it. For example, if you took out a student loan for college in your name only, but your parents are making the monthly payments, including $500 of interest, the IRS treats it as if your parents gave you the money and you made the payments yourself.
Whether you've decided to go back to school full-time or are taking a course or two while you're working, if you enroll at a qualifying educational institution, you may qualify for the lifetime learning credit. The lifetime learning credit offers a 20 percent tax credit on up to $10,000 of qualifying expenses including tuition and required fees. If your income is too high for the lifetime learning credit, you may still be eligible for the tuition and fees deduction, which grants a deduction of up to $4,000.
Retirement Tax Breaks
If you've contributed to a traditional IRA, you'll likely remember to claim the tax deduction for the contribution. If you've contributed to an employer sponsored plan, such as a 401(k) or 403(b), the money is already excluded from your income. However, if you've contributed to any qualifying retirement plan, depending on your income, you might also qualify to claim the retirement savings credit in addition to deducting or excluding your contribution. Qualified retirement plans include traditional IRAs, Roth IRAs, 401(k)s, 403(b)s and 457 plans. The credit equals between 0 and 50 percent of the amount you contributed to a qualifying retirement plan, depending on your filing status and income. In addition, to qualify for the retirement savings credit, you must be over 18, not a full-time student for more than five months during the year and not be claimed as a dependent on another person's tax return.
Whether you're starting your first job or relocating to take a new position, you may be able to write off the costs of moving. To qualify, your move must be related to starting a new job and you must meet the distance and time tests. The distance test requires that your new job be at least 50 miles farther away from your old home than your old job. If your new job is your first job, it has to be at least 50 miles from your old home. The time test requires that you work full-time at least 39 of the first 52 weeks in your new location and, if you are self-employed, at least 78 of the first 104 weeks.
- Internal Revenue Service: IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July
- Internal Revenue Service: Publication 970 - Tax Benefits for Education
- Internal Revenue Service: Publication 590 - Individual Retirement Arrangements (IRAs)
- Internal Revenue Service: Topic 610 - Retirement Savings Contributions Credit
- ABC News: Ten Top Commonly Missed Tax Deductions To Put Cash in Your Wallet
- Kiplinger: The Most Over-Looked Tax Deductions
- H&R Block: Overlooked Tax Credits and Tax Deductions
- Internal Revenue Service: Publication 521 - Moving Expenses
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