Five Overlooked Tax Breaks for Individuals
Confused about which credits and deductions you can claim on your 2015 tax return? You’re not alone. Here are five tax breaks that you won’t want to overlook.
State Sales and Income Taxes
Thanks to last-minute tax extender legislation passed in December, taxpayers filing their 2015 returns can still deduct either state income tax paid or state sales tax paid, whichever is greater.
Here’s how it works. If you bought a big-ticket item like a car or boat in 2015, it might be more advantageous to deduct the sales tax, but don’t forget to figure any state income taxes withheld from your paycheck just in case. If you’re self-employed or retired, you can include the state income paid from your estimated payments. In addition, if you owed taxes when filing your 2014 tax return in 2015, you can include that amount when you itemize your state taxes on your 2015 return.
Child and Dependent Care Tax Credit
Most parents realize that there is a tax credit for daycare when their child is young, but they might not realize that once a child starts school, the same credit can be used for before and after school care, as well as day camps during school vacations. This child and dependent care tax credit can also be taken by anyone who pays a home health aide to care for a spouse or other dependent–such as an elderly parent–who is physically or mentally unable to care for him or herself. The credit is worth a maximum of $1,050 or 35 percent of $3,000 of eligible expenses, if you have one dependent, or $2,100, if you have two or more dependents.
Job Search Expenses
Job search expenses are deductible, whether you are gainfully employed or not currently working–as long as you are looking for a position in your current profession. Expenses include fees paid to join professional organizations as well as employment placement agencies that you used during your job search. Travel to interviews is also deductible (as long as it was not paid by your prospective employer) as is paper, envelopes, and costs associated with resumes or portfolios. The catch is that you can only deduct expenses to the extent they exceed two percent of your adjusted gross income (AGI). Also, you cannot deduct job search expenses if you are looking for a job for the first time, or if you have a substantial lack of continuity between the last time you were employed in your profession and the present.
Student Loan Interest Paid by Parents
Typically, a taxpayer is only able to deduct interest on mortgage and student loans if he or she is liable for the debt; however, if a parent pays back their child’s student loans that money is treated by the IRS as if the child paid it. As long as the child is not claimed as a dependent, he or she can deduct up to $2,500 in student loan interest paid by the parent. The deduction can be claimed even if the child does not itemize.
Most people know that medical expenses are deductible as long as they are more than 10 percent of adjusted gross income (AGI) for tax year 2015. What they often don’t realize is which medical expenses can be deducted, such as medical miles (23 cents per mile, dropping to 19 cents per mile in 2016) driven to and from appointments and travel (airline fares or hotel rooms) for out of town medical treatment.
Other deductible medical expenses that taxpayers might not be aware of include health insurance premiums, prescription drugs, co-pays, and dental premiums and treatment. Long-term care insurance (maximum deductible amounts vary depending on age) is also deductible as are prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers and wheelchairs.
If you’re self-employed, you may be able to deduct 100 percent of the premiums you pay for medical, dental, or long-term care insurance. These premiums can be for coverage for yourself, your spouse, your dependents or your adult child who was under 27 years old at the end of the year, even if that child is not a dependent.
In addition, if you pay for medical expenses for your dependent or anyone for whom you provide more than half his or her support but cannot claim as a dependent, you may be able to deduct those subject to the AGI limit.