It's a new year, and you may be starting to organize your finances for tax time. Here are a few lesser-known deductions.
1. Sales Tax
From your federal income taxes, you can either deduct your state income tax or sales taxes. This can be a huge savings if you live in a state without state income tax (AK, FL, NV, NH, SD, TN, TX, WA, WY). If you do pay state income tax, you’ll still want to look at any large purchases you made last year—like an engagement ring or vehicle—because it may be a better deal to take the sales tax break rather than deduct your state income tax. The IRS provides a helpful table to use as a guide to itemize the deduction.
2. Health Insurance Premiums
If your deductible health expenses last year added up to over 7.5 percent of your adjusted gross income, they can be deducted from your taxes this year. If you are self-employed and paid for your own health insurance coverage, you might be eligible to deduct a whopping 100 percent of the premium costs. If you do qualify, it will be taken off your adjusted gross income and not as an itemized deduction.
3. Classroom Expenses for Teachers
Qualified teachers can deduct up to $250 for learning materials purchased with their own money. It will be subtracted from your income, so don’t worry if you don’t itemize.
4. Lifetime Learning
The Lifetime Learning credit applies to costs for education pursued after high school (apart from the deductions offered to college students). The credit applies to 20 percent of the first $10,000 spent on education after high school, meaning it can total a savings of up to $2,000 a year. The credit does phase out at higher income levels, but not at any specific age.
5. Childcare While Volunteering
If you paid a babysitter to watch your kids while you volunteered your time—either working for free or at a recognized charity—you may be able to list it as part of a charitable contribution on your tax return, effectively increasing your deduction.
It’s always a good idea to speak with a tax expert if you have further questions on what is considered a tax deduction or if you have specific questions about taxes. Also, if you need assistance with taxes, the United Way's Volunteer Income Tax Assistance (VITA) program offers FREE tax return preparation for qualified individuals.
Category: Credit & Budgeting