Tax deductions reduce both your taxable income and your annual tax bill. Although most taxpayers have the option to itemize or take the standard deduction, according to Nolo Law, failing to itemize deductions is the single biggest mistake people make when preparing their taxes. However, with research, careful planning and advice from a tax professional, you can often find ways to increase tax deductions to the point where it pays to itemize.
State Income Tax or Sales Tax Deduction
The Internal Revenue Service gives you the option of claiming either state and local income taxes or state and local sales taxes. The choice is clear if your state doesn’t charge income tax. If it does, you’ll need to decide between the two options because you can’t claim both. For the sales tax deduction, either save receipts throughout the year and add up the total at year’s end or use the IRS sales tax deduction calculator to get a general estimate. This deduction can be especially useful if you purchase a big-ticket item, such as a vehicle, during the year.
Volunteering and Charitable Gifts
According to Bankrate, most people fail to deduct expenses incurred while volunteering or doing other charitable work. For example, you can deduct travel expenses if you use your personal vehicle while doing volunteer work. You can also treat any supplies you purchase as a charitable donation. If you wear a uniform, you can deduct purchase and maintenance costs. Finally, you can include child care expenses as a charitable contribution if you pay a sitter to watch your children while doing volunteer work for a recognized charity.
Job Search Expenses
The IRS allows you to deduct job search expenses as miscellaneous itemized deductions if you lose your current job but start searching for work in the same occupation within a reasonable time. Although the requirement that job-hunting expenses exceed 2 percent of your adjusted gross income may make this choice seem out of reach, the variety of expenses you can include adds up quickly. Among these are travel expenses, printing and mailing costs, telephone expenses, want-ad placement charges and resume services.
Child and Dependent Care Expenses
Although you may be aware that you can deduct a percentage of child care expenses whether you take the standard deduction or itemize, you may be unaware that in addition to before- and after-school care, there are a number of other eligible expenses. For example, you deduct child care costs incurred during the summer break, as well as costs for summer day camp. This deduction also applies to an adult dependent that requires care while you work.
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