These 5 Commonly-Missed Tax Deductions Could Be Costing You Money

by KNS Financial on March 8, 2011

Almost everyone complains about paying taxes, wouldn’t you agree?. In fact, many people go to great (sometimes) illegal lengths to avoid paying them.

However, the IRS estimates that millions of taxpayers fail to claim these overlooked tax deductions, thereby overpaying their taxes each year!

Here is a list of a few of the more common tax deductions that people fail to consider.

Overlooked Tax Deductions

Medical Expenses

This is a category that I see overlooked all the time! Most people don’t know that you can deduct a portion of your medical expenses on your tax return. Even those who do know (because I tell them every year when I prepare their taxes), tend to forget throughout the year.

However, you still have time to not only gather up all of your receipts, but to plan any office visits or medical procedures for 2010! Here is a list of qualifying medical expenses. Of course, there are a couple of things to consider about this deduction (taken directly from IRS Publication 502)…

  • You can include only the medical and dental expenses you paid this year, regardless of when the services were provided.
  • You can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your AGI (Form 1040, line 38).

Example:

Your AGI is $40,000, 7.5% of which is $3,000. You paid medical expenses of $2,500. You cannot deduct any of your medical expenses because they are not more than 7.5% of your AGI.

In the example above, if your medical expenses rise to $3,500, you will be able to deduct $500 (i.e. the amount above 7.5% of your AGI). Start saving all of your medical receipts and cross this off of your list of overlooked tax deductions.

Mileage

Many people forget that they can deduct mileage for various purposes. If you have to drive for business purposes during the year, then you are allowed to claim a certain amount (changes every year) per mile on your tax return. This is not only true if you own your own business, but also if you have to drive outside of your normal commute for your employer, and you are not reimbursed.

You are also able to claim the miles that you drive for medical purposes. This includes driving to a regular check up at your doctor, picking up a prescription, seeing a specialist, etc.

Another overlooked tax deduction is mileage while in the service of a charitable organization.

The IRS has this to say regarding using the standard mileage rate:

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Keep in mind that if you choose to claim tax deductions based on actual costs, you must keep all receipts related to maintenance and fuel.

IRA Contribution

This isn’t make the list as an overlooked tax deduction because people don’t know about it; but rather because many taxpayers ignore it! The easiest way to take advantage of this tax deduction is to use a bonus or even your tax refund!

Making a contribution to an IRA happens to be one of the few things that you can do after the tax year ends. You have until the standard tax return deadline (usually April 15) to contribute for the previous tax year! This means that people are choosing to overlook this tax deduction more than once each year!

Take a look at the IRA contribution limits for both last year and this year, and then create an account.

Job Hunting Costs

Since unemployment is still a large problem in this country, many taxpayers should be able to claim this tax deduction. However, many people fail to keep track of these expenses, and are unable to claim them on their return.

If you itemize your taxes you will be able to include your job hunting expenses as miscellaneous expenses. The one thing that you must note is that if your miscellaneous expenses are not more than 2% of your AGI, you will not be able to claim the deduction (and even then, you are only allowed to claim the amount over 2%).

There are a few other rules that you need to know for your job hunting expenses, so click that link to see all of the guidelines.

Jury Duty Pay Paid To Your Employer

I was just talking to a friend at church about this one – she is actually a tax accountant, but didn’t know about this deduction.

When you have to serve on jury duty, your are paid a jury fee for each day that you serve. Some employers will then reduce your daily pay by the amount of your jury fee. However, many employers will just continue to pay you your full salary instead of making an adjustment.

In these cases, they (your employer) will require that you turn over your jury fee to them. At the end of the year, your employer will report your full salary to the IRS as income, and the municipality for which you served will report your jury fees as income as well – even though you turned them over to your employer.

Well, the IRS allows you to claim a deduction for these jury fees, so that you are not taxed on income that you did not receive.

I can go on with all of the overlooked tax deductions, but I’m sure that Jason doesn’t want me writing a book on his site ;-)! If you have any questions, please leave them in the comments section.

photo by renjith krishnan

Reader Questions

  1. What are some of the tax deductions which you overlooked in the past, but are now aware of?
  2. Were any of these overlooked tax deductions new to you? If so, which ones?
  3. Are there any tax deductions which you know you can claim, but you still fail to keep the proper documentation?

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