Young professionals often are new to tax preparation because Dad or some other caretaker always took care of that. As a result, young people often don't take full advantage of even some basic deductions, which can combine to produce some extra dollars in the pocket. Not every individual will qualify for every tax break, but every young professional needs to be aware of the opportunities.
A home loan or mortgage is the most obvious big tax break, but young professionals may not be aware that the interest paid on home improvement loans, home equity loans and lines of credit secured by a home are also deductible. So are loans on vacation homes if they're not rental units.
Property taxes on the primary residence and a second home also can be deducted. In most cases, these can include such things as special library levies or fees for other government operations based on the property.
State and local taxes are another deduction that's often overlooked. You may have to do some figuring, and it may vary by state, but you can usually deduct such things as sales taxes on purchases., including cars. You also may be able to deduct automobile registration fees and similar taxes.
Retirement plans are a double benefit. They save money for eventual retirement and contributions can be deducted, the amount varying with the type. The Internal Revenue Service sets the limit on tax-free contributions to an individual retirement plan at $5,000 a year, as of publication, but it you're in a self-employed pension program you can defer up to $11,000 a year in pay from taxes. And CBS News reported that in 2012 you can contribute as much as $17,000 to 401(k) program through your work. You'll need to check your specific situation.
Childcare expenses can be deducted, at least in part, if both parents work or are looking for work. If your income is over $43,000, you can claim a tax credit of up to 20 percent of childcare costs, up to $6,000 a year if you have more than one child. The credit amount is even larger if your income is under $43,000.
Charitable gifts are a major item for deductions. You can take these both for cash and property. Used items you donate are included if you provide receipts. You also can deduct your mileage and similar expenses while doing volunteer work for charities in most cases.
You can deduct home office expenses and use of your home for business if you're self-employed or can prove you work from home part of the time. You'll have to base this on the amount of time you use your home and the percentage of the home that's used. This can include such things as computer services.
You can deduct educational expenses, especially if they are job-related. This could include such things as taking night classes to gain new skills or classes required to maintain a license.
You can deduct medical expenses, including what you pay for medical insurance, but only the amount that exceeds 7.5 percent of your adjusted income. If you're self-employed and not covered by a company health policy, however, you may be able to deduct all your expense for health insurance. If you're elgible to set up a Health Savings Account in lieu of another health plan, you can deduct all your HSA contributions
Finally, you can deduct what you pay to have somebody prepare your taxes for you and figure all these deductions properly. A good tax preparer may even find other deductions for you.
- NOLO: Tax Deductions for Professionals
- Turbo Tax: The 10 Most Overlooked Tax Deductions
- Business Know How: 50 Easily Overlooked Tax Deductions
- Realty Times: Top 10 Tax Breaks, On The House
- MSN Money: 10 Big Deductions Too Many of Us Miss
- ABC News: Ten Top Commonly Missed Tax Deductions To Put Cash in Your Wallet
- Forbes: Every Item Counts: Top 10 Tax Deductions
- What Expenses Can I Deduct When Calculating My Taxable Income?
- Income Tax Deductions for Self Employed Individuals
- Most Important Deductions to Remember When Filing Income Taxes
- What Is the Tax Deduction Amount for Medical & Charitable Mileage?
- Tax Write Offs for Caregiving Children of Elderly Parents
- How Much Money Will I Save in Taxes If I Buy a House?
- Tax Write-offs for Doctors
- How to Claim Unreimbursed Mileage