Top money-saving tax deductions
Don't miss the deductions and credits that are mostly likely to yield significant tax savings. Business, home and dependents are 3 key categories.
This post is by Lisa Greene-Lewis at U.S. News & World Report.
Whether you started a new job, sent a kid off to college or made home improvements, there are tax breaks available that could help put a few extra dollars in your pocket this tax season.
Before you file, check out these money-saving tax moves that will help maximize your refund.
Did you change jobs or start your own business in 2011? (Post continues below video.)
With the average unemployment rate at 8.9%, millions of Americans were hunting for a new job in 2011. If you were one of them, your job search, moving expenses and home-office expenses might be tax deductible:
- Job-search expenses. All those resume copies, outplacement agency fees, career seminars, and even business-related travel might be tax-deductible if you actively searched for a job in the same profession. To be eligible for the deduction, however, only your job-search expenses greater than 2% of your adjusted gross income can be claimed. You must also itemize your deductions.
- Moving expenses. Moving expenses related to a new job may be tax-deductible if you meet the distance and time tests. Plus, you could be eligible even if you do not itemize.
- Unemployment benefits. Many people are asking if the first $2,400 of unemployment income is tax-free, but that tax benefit expired Dec. 31, 2010. This year, you must pay tax on all unemployment benefits you received.
- Home-office deductions. Many entrepreneurs are hesitant to write off the business use of their home, but there are many deductions they shouldn’t miss out on. To qualify for the home-office deduction, you must use part of your home exclusively and regularly 1) as your principal place of business; 2) as a place to meet with customers as part of your business; or 3) where the business portion of your home is a separate structure not attached to your home.
Did you welcome a new addition to the family or send a child off to college?
Parenting can be hard work and costly. Whether you have new additions to the family, college-bound students or kids in daycare, you might get a little extra money back in your pocket at tax time:
- Dependent deduction. This is one of our most frequently asked questions today, due to the changing dynamics of relationships. You can claim a "qualified child" or "qualified relative" if they meet certain criteria. You may even be able to claim your boyfriend or girlfriend as a dependent if your significant other meets all seven tests for a qualifying relative, one of which includes living with you for the entire year.
- Education credits. The U.S. government provides incentives in the form of education tax credits and deductions to help decrease the economic impact of pursuing a college education. If you paid eligible education expenses for yourself, your spouse or your dependent, you may qualify for one of these tax benefits.
- Child and dependent care credit. If you paid for childcare, dependent care or even summer camp so you could work, you may be eligible to deduct 20% to 35% of qualifying expenses, up to $3,000 for one qualifying individual and up to $6,000 for two or more qualifying individuals.
- Adoption credit. If you chose to adopt, you may be eligible to take a qualified adoption tax credit up to $13,360 for qualified expenses associated with the adoption.
Did you buy or refinance your home?
Whether you were one of the 302,000 new homeowners in 2011 or longtime homeowners, there may be tax deductions available to help offset some of the financial costs of being a property owner:
- Mortgage refinance. If you took advantage of lower interest rates and refinanced your home, you may be able to take a tax deduction for the points (loan origination fees) paid to refinance your home loan.
- Energy tax credits. The Residential Energy Tax Credit was reduced in 2011, but you still may be able to deduct up to $500 for insulation, roofs and doors.
- First-time homebuyer credit. If you were lucky enough to receive the first-time homebuyer credit in 2008, you were supposed to start repaying the tax credit in 2010 over 15 years through your tax return. That means you will need to make that payment again this year.
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