5 commonly missed tax breaks that can save you money

5 commonly missed tax breaksIt is that time of year again: Tax time. W2s, 1099s and other assorted tax documents have begun to pile up as Americans prepare to file their returns in the hopes of reducing their tax liability and reclaiming money that was overpaid to the IRS.

For 2014, the stakes are high. According to the Congressional Budget Office, over $3 trillion in taxes is expected to be collected and it is estimated that taxpayers itemizing deductions will claim nearly $1.2 trillion dollars in deductions. Unfortunately, U.S. taxpayers often allow the convolutions of our tax code to trip them up - leaving millions of dollars in unclaimed, legitimate deductions. A proactive approach to tax planning may help reduce your chances of making any excess contributions to the U.S. budget this tax season.

American Opportunity Tax Credit

While providing a college education continues to be a costly proposition, the often overlooked American Opportunity Tax Credit may provide some assistance - at least more than the Hope Credit that was previously available. AOTC makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax.

The maximum $2,500 credit per eligible student is available for qualified education expenses paid for the first four years of higher education toward a degree. The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses paid.

Even if the credit pays your tax down to zero, you can still receive 40 percent of the remaining amount of the credit (up to $1,000) refunded to you - not too bad. Your modified adjusted gross income or MAGI must be $80,000 or less for single filers, $160,000 or less for married filing jointly. The credit phases out completely if your MAGI is over $90,000, $180,000 for joint filers.

Lifetime Learning Credit

Unlike the AOTC, the Lifetime Learning Credit is not limited to the first four years of higher education. You can claim 20 percent of up to $10,000 in eligible costs, for a $2,000 maximum credit.

Tuition payments to a post-secondary school (after high school) are considered qualified expenses and the credit is available for any post-secondary classes you take, even if they are not applied toward a degree.

Eligibility phases out from $54,000 to $64,000 in MAGI for single filers and from $108,000 to $128,000 for joint filers. Unfortunately, you are unable to double-dip and claim both tuition credits. For most students working toward a four-year education, the American Opportunity credit may provide greater tax savings. See Publication 970 - Tax Benefits for Education for additional information.

Job hunting

The recent surge in job creation (257,000 in January alone) has caused many previously discouraged workers who had given up on finding employment to re-enter the work force. According to the Labor Department, nearly 703,000 Americans returned to the labor force to look for work. For those on the hunt for new job opportunities, tax deductions may exist to help offset a portion of these costs.

If you itemize your deductions, expenses related to your search for a new job may be tax deductible as a miscellaneous expense. Employment agency fees, printing costs for business cards & resumes, lodging and transportation costs if you must travel and stay overnight in search of work may all be deductible. Additionally, mileage for driving your own car (56 cents per mile) plus parking and tolls can also be deducted. Review IRS Publication 529 - Miscellaneous deductions for additional information.

Job relocation costs

If you must relocate and the new job is at least 50 miles farther from home than your previous job, you may be eligible to deduct a portion of your moving expenses including mileage, parking and tolls. Keep in mind that the expenses must be associated with the search for a job related to your field and cannot be associated with a new profession or your first job. Consider reviewing IRS publication 521.

Retirement Saver's Credit

The IRS wants to incentivize most taxpayers to save for retirement - especially those who have moderate to low income. As a result, the Retirement Saver's Credit was created. A credit of up to 50 percent of your contribution or $2,000 (single filers) or $4,000 (joint filers) may be available depending on your income level.

Single filers earning less than $30,000 per year and joint filers earning less than $60,000 may be able to take advantage of the credit. Keep in mind that the credit rate is reduced down from 50 percent to 10 percent of the contribution as your income increasing toward the cap. Since saving for retirement is much more difficult if you are earning less, the Retirement Saver's Credit is a great way to leverage a tax credit to help subsidize retirement savings.

Charitable contributions

While many taxpayers remember to deduct monetary charitable contributions, it is quite common for taxpayers to miss opportunities for additional tax savings. While you are unable to donate the value of your time spent supporting the charity of your choice, you can deduct other costs associated with your volunteering - especially supplies, uniforms and travel costs. The deduction for mileage is 14 cents per mile and can add up. Be sure to maintain detailed records so that you can substantiate your deductions with supporting documentation. See IRS Publication 526 for additional information.

It is not uncommon for taxpayers to overlook deductions, resulting in paying more to the IRS than is necessary. In order to ensure that you are taking advantage of every deduction possible, consider working with a CPA professional that can help. Since everyone's situation is unique, consider speaking to your tax adviser to determine the best approach for you.

 

Kurt J. Rossi, MBA is a Certified Financial Planner, Practitioner & Wealth Adviser. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.