When you owe income taxes, you probably spend a lot of time staring at the tax preparation software screens wishing you knew the magic deductions to plug in that would drop your tax liability to zero. Tax laws are complicated; it’s tempting to believe that if you just had a brilliant and creative CPA in your corner, s/he could make a few tweaks and you’d be walking away with a refund heading into your bank account, rather than wondering how you’re going to come up with the money to pay your tax bill on time.
The idea of a tax wizard who finds all kinds of loopholes to get you out of paying any income tax is a bit of a fantasy. There’s no magic wand involved in filing your taxes to your best advantage. And, it doesn’t pay to get too creative—unless you’re the kind of thrill-seeker who enjoys getting audited.
Still, there are plenty of deductions, credits, and strategies you can take advantage of to reduce the taxes you owe. If you’ve been filing your taxes on autopilot for years, several of the tips below probably aren’t even on your radar.
Arguably the best way to save on your taxes is to hire a professional to guide you. They’re trained to find the most tax breaks possible for your individual situation. Paying for their expertise is money well spent when you end up cutting down the amount you owe. If you’ve never had a trained tax adviser optimize your allowances, deductions, and overall tax strategy, you might be missing out on a lot of good advice that could have a big positive impact on your finances.
However, sometimes a lack of time or money means you’re stuck doing your own taxes. When you’re on your own, here are five examples of ways you can reduce your taxes that you might not have known about.
Job Hunting Expenses
Many people are navigating rough waters in the job market these days. Still, there’s a silver lining to having spent the last year on a lengthy hunt for the right job—your job searching expenses are tax deductible.
There is a catch. You have to have been searching for employment in the same field as your current or last job. If that’s the case, you can itemize deductions of search-related expenses, such as:
- Transportation (54 cents per mile, and you can include parking, tolls, and cab/ridesharing fees)
- Resume preparation (including the costs of printing and mailing them out)
- Fees paid to job searching sites or employment agencies
Searching for a job is hard work in itself, so reward yourself for the effort by tracking how many miles you drove to interviews, how much you paid job-finding services and headhunters, and what you spent on polishing up and distributing your resume. Don’t hesitate to take those deductions!
Charitable Donations Of Money, Goods, and Volunteer Work
Doing good in the world is its own reward, but that doesn’t mean you can’t take advantage of the tax benefits that encourage you to donate your time, money, and property to charitable organizations. Whether you volunteer your time and labor, give cash, or donate household items that you don’t need anymore, there are deductions that will apply to you.
Did you drive to work at a volunteer site? You can deduct the costs of gas and wear on your car, or take a standard 14 cents per mile deduction. Parking, uniforms, cleaning, and other expenses necessitated by your volunteer work may also be deductible.
If you gave money directly to a charity, you can deduct those donations for up to half of your adjusted gross income. Just make sure you keep receipts, bank statements, or other records to back up your deductions for charitable cash donations.
When you’re itemizing your deductions, you can deduct the fair market value of clothing, appliances, tools, vehicles, and other personal property that you donated to charitable organizations. Just make sure the organizations qualify as legitimate charities under IRS rules.
College Tuition And Student Loan Interest
College is more expensive than ever these days and still vitally important for securing a good job in a desirable field. Paying for the education you need to find a career that can help you pay off your college loans can seem like a vicious cycle. The good news is—if you or a family member were enrolled in higher education last year—you may have several big deductions sitting on the table.
Did you pay tuition for yourself, your spouse, or a dependent? If so, you can deduct up to $4,000 in tuition and fees, whether you’re taking the standard deduction or itemizing.
If you took out student loans to pay for college, you can take a deduction on the qualified loan interest—either $2,500 or the actual amount you paid, whichever is lower.
These deductions are only legal if you’re not married, or are and filing separately, or being claimed as a dependent on somebody else’s taxes. Make sure you check before you file.
Hopefully getting a tax break for your higher education will take a little sting out of those big tuition and student loan bills!
Business Use Of Your Home Or Vehicle
Are you filing any 1099 forms with your taxes this year? When you run a business out of your home, you can deduct some of the expenses of using your home for business-related activities. Some of the qualifying uses of your home would include:
- Using part of your home as your primary workspace or office
- Meeting and conducting services for clients in your home
- Storing inventory, samples, and business equipment in your home
- Renting space in your home as part of your business
- Using part of your home as a day care facility
There are specific laws governing when and how you can claim areas in your home as part of your business expense—the square footage you claim is required to be used exclusively for business activities—so you can’t claim your entire living room just because you do some freelance coding on the couch. If you’re claiming home business deductions without the help of a tax professional, make sure you thoroughly read up on the rules.
Drivers for ridesharing companies, take note! The costs of using your car for your job or business may also be deductible. You have the option of using either a standard mileage rate or calculating the actual costs of operating and maintaining your vehicle for its business-related purposes. Taking the standard deduction is obviously less of a hassle, but if you use your vehicle extensively for the work that you do, it may be more advantageous to take deductions based on the actual expense.
The Earned Income Tax Credit
Credits are even better than deductions when it comes to reducing your tax bill. Each credit dollar you claim is one dollar less that you owe the IRS. You can even use refundable credits to reduce your tax liability below zero, so you still get a refund!
One of the most substantial credits you can take is the Earned Income Tax Credit, which is intended to benefit working people with low to moderate incomes. Despite the big savings this credit provides, as many as twenty percent of eligible filers don’t take advantage of it.
If you have a job and your income falls within the allowable range, you can take this credit even if you’re single and have no children. The credit amount runs from $510 to $6,318 for the 2017 tax year—that’s a whole lot of money back in your pocket if you qualify.
When you file your taxes, you definitely don’t want to be one of the twenty percent who could have taken the Earned Income Tax Credit, but didn’t.
These Aren’t the Only Tax Secrets That Could Help You Out
Hopefully, you’ll be able to put one or more of these five secrets to use when you file your taxes this year, either reducing your bill or—better yet—beefing up the refund you get back.
If you did find these five secrets helpful, think about how many other secrets a good tax professional could clue you in to. Medical and dental expenses, moving expenses, retirement plan contributions, mortgage interest, energy efficiency home improvements, child adoption, and many other costs that you might have incurred over the past year have the potential to become money-saving deductions when you file.
A tax professional can also help you come up with a strategy during the year to reduce your tax burden when you file. Whether you are getting ready to file for last year, or looking for ways to reduce the taxes you will eventually pay for this year, schedule an appointment with a professional tax adviser as soon as you can!