We’ve updated all the key details in this popular guide to the common tax deductions many filers miss to ensure that your 2016 return is a money-saving masterpiece. Cut your tax bill to the bone by claiming all the tax write-offs you deserve.
STATE SALES TAXES
After years of uncertainty, in 2015 Congress finally made this break “permanent.” This is particularly important to you if you live in a state that does not impose a state income tax. Congress offers itemizers the choice between deducting the state income taxes or state sales taxes they paid. You choose whichever saves you the most money. So if your state doesn’t have an income tax, the sales tax write-off is clearly the way to go.
This isn’t a tax deduction, but it is an important subtraction that can save you a bundle. And this is the one that former IRS commissioner Fred Goldberg told Kiplinger millions of taxpayers miss. . . costing them millions in overpaid taxes.
If, like most investors, you have mutual fund dividends automatically reinvested to buy extra shares, remember that each new purchase increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include reinvested dividends in your basis results in double taxation of the dividends—once in the year when they were paid out and immediately reinvested and later when they’re included in the proceeds of the sale.
Don’t make that costly mistake. If you’re not sure what your basis is, ask the fund for help. Funds often report to investors the tax basis of shares redeemed during the year. In fact, for the sale of shares purchased in 2012 and later years, funds must report the basis to investors and to the IRS.
OUT-OF-POCKET CHARITABLE DEDUCTIONS
It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub).
But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for a school’s fund-raising mailing count as charitable contributions. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity, remember to deduct 14 cents per mile, plus parking and tolls paid, in your philanthropic journeys.
STUDENT-LOAN INTEREST PAID BY MOM AND DAD
Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child’s student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest paid by Mom and Dad each year. And he or she doesn’t have to itemize to use this money-saver. (Mom and Dad can’t claim the interest deduction even though they actually foot the bill because they are not liable for the debt.)
If you’re among the millions of unemployed Americans who were looking for a job, we hope you were successful ... and that you kept track of your job-search expenses or can reconstruct them. If you were looking for a position in the same line of work as your current or most recent job, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn’t land a new job. But such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. (Job-hunting expenses incurred while looking for you first job don’t qualify)
Deductible costs include, but aren’t limited to:
• Transportation expenses incurred as part of the job search, including 54 cents a mile for driving your own car plus parking and tolls. (The rate falls to 53.5 cents a mile for driving in 2017.)
• Food and lodging expenses if your search takes you away from home overnight
• Cab fares
• Employment agency fees
• Costs of printing resumes, business cards, postage, and advertising.
MOVING EXPENSES TO TAKE YOUR FIRST JOB
Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don’t itemize. To qualify for the deduction, your first job must be at least 50 miles away from your old home.
If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car on a 2016 move, deduct 19 cents a mile, plus what you paid for parking and tolls. (The rate falls to 17 cents a mile for 2017 moves.) For a full list of deductible moving expenses, check out IRS Publication 521.
MILITARY RESERVISTS’ TRAVEL EXPENSES
Members of the National Guard or military reserve may write off the cost of travel to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills.
For 2016 travel, the rate is 54 cents a mile, plus what you paid for parking fees and tolls.
You may claim this deduction even if you use the standard deduction rather than itemizing.
(The rate falls to 53.5 cents a mile for 2017 travel.)
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