Overlooked itemized deductions that get you closer to $0 in owed taxes
It’s a debate that will invariably take center stage during the upcoming Presidential election: taxes. And the federal tax bill – or lack thereof – from huge, profitable companies is always fodder for candidates to attack. Consider the recent headlines screaming that:
- Last year, Amazon paid $0 in U.S. federal income tax on more than $11 billion in profits before taxes. It also received a $129 million tax rebate from the federal government.
- Senator Bernie Sanders tweeted that: "Your $8.99 Netflix subscription is more than the company paid in federal income taxes last year (nothing). We are going to make massive corporations finally pay their fair share.”
- The New York Times published a story on the front page of their November 17th Sunday edition blasting Federal Express for paying no federal income taxes last year.
The CEO of FedEx responded by pointing out that the New York Times parent company paid no federal income taxes in 2017 and then challenged the NYT editor to a fight (ok technically, the challenge was to a debate).
So, while any fight-debate about federal tax policy and the extent to which it benefits society and business investments sounds like fun, let’s focus on how you and I can reduce our own tax bill.
Because every possible tax deduction helps and many available legal deductions go unclaimed each year simply because most taxpayers still don’t know the breaks exist. From eyeglasses to airline baggage fees, you might qualify for at least one often-forgotten deduction – and maybe more than one.
The Internal Revenue Service allows you to take the cost of certain items, known as itemized deductions, off your tax bill if you qualify. You should itemize deductions if they add up to more than your standard deduction, the IRS advises.
If you itemize, don’t overlook these categories:
Job-hunting. Did you spend out-of-pocket to travel to interviews, or shell out for stationery for resumes and cover letters? Deducting these items can make a big dent at tax time.
You don’t have to be officially unemployed, either: Expenses that you incur searching for a better job, even while fully employed, qualify. Other applicable deductions include food and lodging for overnight stays, cab fares and fees you pay to employment agencies.
Medical items. You probably realize that you can deduct necessary medical items like wheelchairs and hearing aids. Guess what? In addition to out-of-pocket costs, the medical expenses, the IRS allows you to deduct mileage or other travel expenses associated with medical visits.
Further, you can deduct home improvements that were done for medical reasons – maybe a wheelchair ramp or the installation of support rails in your shower.
Giving to charity. Qualifying donations constitute one of the most common ways that Americans gain tax deductions. Many other acts of charity also qualify.
You can deduct such out-of-pocket expenses as the cost of paint and poster board for a school fundraiser, for example, or the cost of delivering meals or chauffeuring other volunteers.
Generally, deductions of more than $250 for individual donations require a written acknowledgement from the charity.
Jury duty. Your employer may be one of the many that pays employees during jury duty but requires employees to turn over jury pay later. To even things out, you can deduct the amount you give to your employer.
Baggage fees. We are constantly griping about these fees, which can quickly make that cheap airline ticket not so cheap. But if you are self-employed and traveling on business, you can tag on those costs as legitimate deductions.
Loan interest. In most cases, you can only deduct student-loan interest if you’re legally required to repay the debt. If you’re a non-dependent student who still receives help from mom and dad, your parents’ generosity may help at tax time in a different way.
If mom and dad pay your loans, the IRS treats the money as a gift to you, the child, who in turn used the money to pay the debt. A non-dependent child can qualify to deduct up to $2,500 of student-loan interest paid. Note: Mom and dad cannot claim the interest deduction.
Keep Good Records
To get the most out of your tax deductions, stay organized and do your research. No one likes getting audited, but if the IRS does red flag you, some costs of professional advice to defend yourself are, in fact, deductible.
These deductions probably won’t allow you to pay $0 in taxes, but every dollar saved is a good dollar.