Happy St. Patrick’s Day! Just like finding $20 in your coat pocket, getting a big tax refund may feel pretty lucky. In fact, luck has nothing to do with it! Knowing the tax deductions and credits available to you is a big part of ensuring you get as much money as possible back. Luckily, TurboTax automatically checks for more than 350 deductions and credits. This month, we shared ten commonly overlooked tax deductions, but what about credits to keep in mind? Take a look.
Commonly Overlooked Tax Credits
- Energy Credits: Part of the confusion here is that just about every year, Congress removes or restricts this deduction, only to restore it just before the next season begins. But for 2016 you can still take a credit of 10% of cost up to $500 for windows, doors, insulation, roofs, non-solar water heaters, air conditioning and heating. You can also take a credit up to 30% of the cost of installing qualified residential alternative energy equipment, such as solar hot water heaters, wind turbines, and geothermal heat pumps.
- Education Credits: The American Opportunity Tax Credit provides a credit of up to $2,500 per student off your tax liability, if you paid for eligible college expenses for yourself, your spouse, or your dependent. There’s also the Lifetime Learning Credit, that provides a credit of up to $2,000 per tax return for graduate studies and continuing education.
- Child and Dependent Care Credit: You may be entitled to a tax credit if your children are under the age of 13, and require childcare. This includes, but isn’t limited to, before and after school care programs, day care, and day camps. Overnight and sleepover camps are not eligible. This credit also applies to any non-child dependents as long as they qualify. There are a few other qualifications, such as you have to have earned income, you must have paid for the care so that you could work or look for work, and you must provide the name, address, and ITIN of the provider. The amount of the credit ranges from 20% to 35% of up to $3,000 for one child, and up to $6,000 for two or more children. And while the credit is lower the more that you earn, it is not less than 20% no matter how much you earn.
Take advantage of every tax credit that is available to you, even the small ones, and you can increase your tax refund by a significant amount. And, hey, it must be your lucky day because we have a few more tax deductions to keep in mind!
- Sales and Local Tax Deduction: You are permitted to deduct either the state income tax paid or the state sales tax paid. You can choose either but if you live in a state without a state income tax, it’s a no brainer. You would deduct the state sales tax you paid. You are free to choose the one that gives you the biggest tax deduction. TurboTax will chose the option that gives you the biggest tax deduction.
- Charitable Contributions: If you made any donations, no matter how small, remember to deduct them. It’s easy to forget the smaller amounts you contributed to various walks or races, but they add up quickly. Cash contributions will need a receipt as supporting documentation so remember to keep them throughout the year. If your contribution is greater than $250, you will also need a form of acknowledgement from the charity. You can’t deduct the value of your time when you volunteer, but you can deduct your travel at 14 cents per mile as well as any parking and tolls you paid. Keep a good record of your mileage, including the date, mileage, and purpose – as well as receipts for tolls and parking.
- Student Loan Interest Paid by Mom and Dad: In the past, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law said that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. If Mom and Dad pay back the student loan incurred by their children, the IRS treats it as though they gave the money to their child, who then paid the debt. So a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad.
- Reinvested Dividends: This isn’t really a tax deduction, but it is a subtraction that can save you a lot of money. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares. Forgetting to include the reinvested dividends in your cost basis—which you subtract from the proceeds of sale to determine your gain—means overpaying your taxes.
- Job Hunting Expenses: You may be able to deduct the cost of travel, meals, resume preparation, postage, career counseling and employment agencies, to the extent that they exceed 2% of your income, even if you don’t end up changing jobs.
Don’t forget: with TurboTax, you are not required to know these tax laws. TurboTax will ask you simple questions, search over 350 tax deductions and credits and give you the ones you are eligible for based on your answers. So good luck this tax season (not that you need it!)!