This is the Day 3 challenge in the #MONEY30, a month-long bootcamp for personal finance novices. You can read more about the challenge here, and follow along with us on Twitter and Instagram, or email us at [email protected]
TIME BUDGET: 10 MINUTES
It’s early April, which means that it’s everyone’s favorite time of year: tax season. Whether you’re scrambling to prep your return—which is due in just 12 days, on April 18 this year—or you’re ahead of the game and have filed already, you should be sure to check for some simple deductions that can be easy to miss.
Most taxpayers take the standard deduction—a fixed dollar amount based on your filing status and age that cuts your taxable income. The federal standard deduction is $6,300 for single filers and married couples filing separately and $12,600 for married couples filing jointly for the 2015 tax year (and the same goes in 2016).
However, you should itemize deductions (akin to an “a la carte” way of filing taxes) if the write-offs you’re entitled to—common ones include mortgage interest, property taxes, and state and local taxes—add up to more than the standard deduction. But some valuable deductions are available even if you take the standard deduction. Other itemized deductions are easily overlooked. So check for these common write-offs that you may have missed:
1. Student loan interest paid by your parents. Even if Mom and Dad helped out with your student loan payments, you may still be eligible for a deduction because the IRS treats the money as though your parents gave it to you, and you then paid the debt. As long as your parents don’t claim you as dependent on their return, you can deduct up to $2,500 of student loan interest they paid. Better yet, you can take this deduction even if you don’t itemize. (Income limits apply.)
2. Moving expenses for a new job. Did you have to move in the past year for your career? If so, you might be eligible to write off some of your moving expenses. This deduction applies only if your new workplace is at least 50 miles further from your former home than your previous office was. Like student loan interest, you don’t have to itemize to take this deduction. You can also write off job hunting expenses, like traveling for interviews and printing your resume, but those costs are deductible only to the extent they exceed 2% of your adjusted gross income.
3. State tax paid last year. If you owed taxes last year when you filed your state return, remember to include that amount in your state tax itemized deduction, along with state income taxes withheld from your paychecks in 2015.
4. Charitable gifts. If you donated to an IRS-approved non-profit group last year (use this IRS tool to check), you should be able to write off the gift on your taxes this year, assuming you itemize deductions. You’ll need proof of the contribution in the form of a bank record or a receipt with the charity’s name and donation amount.
5. Contributions to your IRA. If you have a traditional individual retirement account, your contributions are often tax deductible (while those to Roth IRAs are not). You can put as much as $5,500 into an IRA for 2015 ($6,500 if you’re 50 or older) right up until the April 18 tax-filing deadline. If you do not participate in a traditional retirement plan at work, such as a 401(k), your traditional IRA contribution is fully deductible. If you do participate in an employer-sponsored plan, you become ineligible for a tax deduction once your income reaches $71,000 for single filers and $118,000 for joint filers. Since this is technically an adjustment to your income, you can get this benefit regardless of whether you itemize or take the standard deduction.
6. State sales tax. If you itemize, you can deduct either state and local income taxes or state and local sales taxes. Pick whichever is bigger. For the sales tax deduction, you don’t have to have saved all your receipts. Instead, you can figure your sales tax deduction using the IRS tables, which are based on your income and where you live. If you made a big purchase like a car, you can add the sales taxes you paid to that amount.
7. Home office deduction. If you’re self-employed and work from home, you can deduct $5 for every square foot of workspace you use—up to 300 square feet. You can also calculate the deduction by figuring out how work-related expenses are applied over the year to your home office—whichever calculation gets you the greatest deduction.
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