For regular citizens, the fiscal cliff deal brings lots of changes to how our taxes will be calculated.
The good thing about taxes is they're only filed once a year. The bad thing is it's almost impossible to remember which tax deductions you qualify for each year.
"Credits come and go. It's hard to remember," says Bob Wheeler, a certified public accountant in Santa Monica, Calif. While the IRS does all it can to help taxpayers determine which itemized deductions to apply to their taxes, there are enough possible tax deductions that it's easy to miss some, experts say.
The good news is that for most people who haven't had major life changes -- having a child, losing a job, buying a house, getting married, etc. -- filing taxes shouldn't be too hard, says Mark Steber, chief tax officer at Jackson Hewitt Tax Service. "The bottom line for most taxpayers is that 2012 should mostly represent 2011, because there weren't many tax law changes," Steber says. Here are some of the tax deductions you don't want to overlook:
Medical costs. These include health insurance premiums, dental care, glasses, counseling, therapy, and miles driven to medical appointments, Wheeler says. The medical expenses must add up to more than 7.5% of your adjusted gross income (AGI) for 2012 taxes. In 2013, that figure rises to 10% of AGI, he says.
Long-term care insurance is deductible, subject to specific dollar amounts depending on age, says Gail Rosen, a CPA in Martinsville, N.J. Weight-loss programs are deductible if undertaken as treatment for a disease diagnosed by a physician, she says.
Housing. Deducting mortgage interest is a no-brainer, but other costs when buying a house can be deducted from taxes, including private mortgage insurance, points paid on an original mortgage, and energy credits. "Once you get past a mortgage and a W-2, it just gets a whole lot more complicated," says Wheeler.
Education. Student loan interest is commonly missed, Steber says. Parents contributing to a child's college education can choose to take a tuition and fee deduction of up to $4,000, or can take tax credits, he says. The American Opportunity Tax Credit is for up to $2,500 per student for the first three years of college, and the Lifetime Learning Credit is for up to $2,000 per family for every additional year of college or graduate school, Rosen says.
Non-cash charitable contributions. Deducting a cash contribution to a charity is easy enough, but too often people don't accurately value non-cash contributions such as clothes, Steber says. Determine fair-market value and don't value them for less than they're worth, he recommends. Other charitable deductions include expenses paid of behalf of a charity, and donating appreciated stock, Rosen says.
Retirement. The American Taxpayer Relief Act of 2012 allows taxpayers to roll over funds from a regular 401(k) retirement account into a Roth account under the same plan. For people with IRAs, some miss the opportunity to contribute to it and don't realize that it's a deduction that doesn't need to be funded by Dec. 31 of the tax year, says Neil Johnson, a CPA in Northbrook, Ill., who blogs about taxes at TheTaxDude.com. Taxpayers have until April 14 of the following year to fund their IRA.
Job hunting. Qualifying expenses are deductible even if they didn't result in a new job being offered or accepted, Rosen says. These costs include resumes, postage, job counseling, employment agency fees, telephone charges, and travel for interviews that isn't reimbursed by the prospective employer. They must exceed 2% of your AGI. To be deductible, you must be looking for work in the same trade or business that you've been in, she says, adding that job hunting expenses when looking for a job in a new field aren't deductible.
Bad debt. Ever loan someone money and not get repaid? You could qualify for the non-business bad debt tax deduction for individuals, says Anisha Bailey of A.C. Bailey Tax Solutions in Beavercreek, Ohio. Individuals and married couples can claim the deduction and get a loss of up to $3,000 per year when they loan someone money and aren't repaid, Bailey says.
"This non-business bad debt loss is deducted as a short-term capital loss and they can carry forward any amounts they are not able to claim in the current year and reduce their taxable income in future years," she wrote in an email. However you prepare your tax returns --- with a computer program, hired professional or by yourself --- it's important not to rush through the process, Rosen says. "So many people just drop off their stuff at an accountant," she says. "Just like anything, taxes take a lot of time --- whether it's a professional or you're doing it yourself."
-- Aaron Crowe is a contributor to Credit.com.
|Personal Finances Military Taxes|
Credit.com provides readers with unique insight, helpful tips and straight answers about their financial world. Our team of reporters and experts explore credit, loans, debt, saving, and identity theft topics, all designed to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!
With tax season in full swing, you should take note of the many deductions and credits available to you because of your military service; whether on active duty or on reserve.
Although going back to school can be a pricey venture, military servicemen and women should keep in mind that their military status makes them eligible for certain education benefits.