It's been said that nothing in life is certain, except death and taxes. And since you work hard for your money, the smaller your bill is at tax time, the better. That's why income tax deductions are so valuable.
Brush up on these potential deductions for 2015 to make sure you're using the tax laws to your advantage.
1. Traditional IRA contributions. Generally, you have until April 15, 2016, to contribute up to $5,500 to a traditional IRA for 2015 and, if you qualify, deduct it on your tax return. Here are some additional guidelines for 2013:
|If You Were...||You Can...|
|NOT covered by an employer's retirement (also applies to your spouse, if married).||Generally deduct your contribution in full.|
|Covered by an employer plan AND your modified adjusted gross income was less than $61,000 ($98,000 for married couples filing jointly).||Generally deduct your contribution in full.|
|Covered by an employer plan AND your modified adjusted gross income was more than $61,000 but less than $71,000 (more than $98,000 but less than $118,000 for married couples filing jointly).||Take a partial deduction.|
|NOT covered by an employer plan but your spouse was, you are married filing jointly, AND your combined modified adjusted gross income was below $183,000.||Take a full deduction.|
|NOT covered by an employer plan but your spouse was, you are married filing jointly AND your combined modified adjusted gross income was more than $183,000 but less than $193,000.||Take a partial deduction.|
See IRS Publication 590 for more details.
2. Retirement plans for the self-employed. If you work for yourself, you can open a Simplified Employee Pension (SEP) IRA by the due date (including extensions) of your income tax return and deduct your contribution, subject to certain limits on your return. SEP IRAs may be an easy way to create your own retirement plan, and they can allow much higher contributions than traditional IRAs. Contributing to a SEP IRA does not exclude you from making an IRA contribution, but it may affect whether you can take a deduction for it. (A SEP IRA is considered an employer-sponsored plan).
3. Mortgage interest. You're allowed to deduct interest paid on your primary mortgage, as well as qualified home equity loans, home improvement loans and lines of credit. In general, you may deduct interest on up to $1 million of primary mortgage debt and up to $100,000 of home equity debt.
4. State and local taxes. The federal government generally allows taxpayers to deduct property and income taxes paid to state and local governments.
5. Sales tax. If you didn't pay much state income tax -- or live in a state that doesn't tax income at all -- you may be able to choose to deduct sales tax instead. And you typically don't need receipts -- simply use an IRS table or sales tax deduction calculator to find a deduction amount that's based on the average consumption by taxpayers in your state.
If you made a lot of purchases -- bought a new house or car, furnished an apartment, or got engaged or married -- you may want to itemize your sales tax deductions. For this, you'll need receipts, but the good news is there is no limit on the deduction amount.
6. Charitable gifts. Donations to charity may ease your tax burden, but only if you have the right documentation.
|Amount||Generally Required Documentation|
|Any||Bank record, payroll deduction records or a written communication from the organization, containing the name of the organization, the date of the contribution and amount of the contribution.|
|$250 and over||The written communication must also show the gift total and a description of any property contributed. It must also state whether the organization provided any goods or services in exchange for your gift.|
|$5,000 and over||These gifts may require an appraisal, in addition to the above.|
7. Education costs. Up to $2,500 in interest on loans for qualified higher education expenses may be deductible if your adjusted gross income is less than $75,000 ($155,000 if you're married and filing a joint return). A portion of your tuition and fees may be deductible up to $4,000 if your adjusted gross income is $80,000 or less ($160,000 on a married filing jointly return). There are also two tax credits for college costs: the American Opportunity Credit and the Lifetime Learning Credit (See IRS Publication 970).
8. Medical and dental costs. The government sets a high hurdle for these expenses: For 2013, if you're under 65 years old, you may only deduct them to the extent they exceed 10% of your adjusted gross income; for those 65 or older, the threshold is 7.5%.
9. Health insurance. Self-employed taxpayers get a break on one of their biggest financial headaches. In general, they may be able to deduct all of their health insurance premiums.
10. Health savings accounts.If your family was covered by a high-deductible health insurance plan in 2015, you may be able to contribute up to $6,650 to a health savings account ($3,350 if it only covered yourself). Contributions are deductible, and withdrawals for qualified medical expenses are tax-free. Similar to IRAs, you have until April 15 to contribute for the previous tax year.
11. Job-related moving expenses. If you moved to take a new job, you may be able to deduct your expenses for 2013 if you pass these two IRS tests:
- Your new job must be at least 50 miles farther from your old home than your old job. If you didn't have a previous job, your new one must be at least 50 miles from your old home. If you're in the military with permanent change of station orders, you do not have to meet these rules.
- If you're an employee, you must work full time for at least 39 weeks during the 12 months after you arrive in the general area of your new job. If you're self-employed, you have to work full time for at least 39 weeks during the first 12 months and 78 weeks during the first 24 months.
12. Guard and Reserve travel expenses. If you traveled more than 100 miles to attend a drill and spent the night, you may be able to deduct lodging expenses, half the cost of your meals and 57.5 cents per mile for travel that are unreimbursed. You also can deduct unreimbursed tolls and parking fees.
13. Out-of-pocket teacher expenses. Teachers, instructors, aides, counselors and principals -- kindergarten through 12th grade -- may be able to deduct up to $250 for eligible classroom supplies and other equipment purchased in the tax year. (This limit is $500 for married filing jointly taxpayers if both are educators, subject to a $250 per person limitation.)