Make sure you do not forget these tax deductions.
There are the standard tax reductions every taxpayer knows about, but there are three others few realize that they can deduct to reduce their taxes. Plus a bonus!
- Volunteer work donations
Many Americans volunteer their time and services to nonprofit organizations instead of making financial donations or donating assets. Taxpayers can deduct some expenses from charitable work, like the cost of fuel that transports the volunteer to and from the place where the charity work is done.
There is no need to calculate the price per gallon of gas or the vehicle’s gas mileage. 14 cents per mile is the acceptable rate. Volunteers may also deduct the price of clothing (uniform, gloves, etc.) used to carry out the volunteer work. Parking costs (parking garage, street meter) incurred at their volunteer location may also be deducted.
Even the costs of public transportation can be deducted.
- . Home improvements
A taxpayer can deduct energy-saving home improvements like energy-efficient windows, new insulation (depending on the type), skylights, doors, and other energy-efficiency home upgrades.
Installation costs cannot be deducted.
The tax credits are subject to a lifetime cap. Ask your accountant for the specifics.
The great news is that alternative energy additions such as solar power panels, geothermal heat pumps, solar water heaters, wind turbines have no lifetime tax credit deductions. And they include installation costs.
Another overlooked deduction is home improvement costs for medical needs such as wheelchair ramps, stairway railings, and permanent mobility devices.
- Hobby expenses
This is often the biggest shocker to taxpayers. The specifics are important to note.
A hobby cannot be for-profit. Example: If a taxpayer creates paintings to sell, this is considered a business, not a hobby.
A hobby is an activity that a person does not expect to earn a profit from.
The IRS says first to determine if it’s a true hobby such as collecting, arts and crafts, or sports.
So, what can be deducted?
The hobbyist can normally deduct common expenses and necessary expenses that are appropriate for the hobby: costs of materials, equipment, etc.
Deductions must be itemized on Schedule A to claim hobby expenses.
Tax law can often change. It’s important to work with your accountant on deduction rules.
Those are the three biggest unknown tax deductions, but while we’re on the topic, here is a brief list of others:
- Investment fees and expenses
- Reinvested dividends
- State sales taxes
- Amortizing bond premiums
- Home improvements
- Child care credit
- College credit for those long out of college
- Waiver of penalty for the newly retired
- State income tax refund
- Deduction of Medicare premiums for the self-employed
Bonus: If you receive interest in an annuity and do not access the funds during the year it was credited, you are not taxed. Your accrued interest will be tax-deferred for one or any number of years until you decide to access the funds. Tax deferral allows you to control when the taxes are paid on credited interest.
Be sure and ask your tax preparer about how these deductions can benefit you and always work with a licensed and authorized professional.