Most Overlooked Tax Deductions

Some tax deductions are easy to remember.  Mortgage interest and points, for example, are usually foremost in taxpayers’ minds because they represent a large part of the deductions and because they are usually reported to the taxpayer by the bank.  Likewise, medical expenses are likely either too small to overcome the 7.5 percent of AGI threshold, or are so large that the taxpayer will remember to include them.  But there are some other deductions that are easy to overlook because nobody will be reminding you by sending you are statement.  They can add up fast.

Two often-overlooked categories of deductible expenses involve changing jobs.  If you had expenses related to searching for a job or moving to start a job, those expenses are deductible.  For moving expenses, you can deduct them for any move of more than 50 miles for a job, even if it is your first job in that line of work.  For job search expenses, the rule is that you have to be searching for a new job in the same line of work as your previous job.  Deductible expenses include out of town travel, transportation including reimbursement for mileage at the standard IRS mileage rate, the cost of printing and mailing resumes, and any other expense directly related to finding and moving for the new job.  Job hunt and moving expenses are subject to the two percent miscellaneous deduction limit.

Military reservists and national guard members can deduct the costs of travel to and from drill locations as long as they live more than 100 miles from the drill site.  This is an “above the line” deduction not an itemized deduction, and reported on form 2109.  Reservists can deduct plane, rental car, and cab costs, standard mileage, hotel costs, and one half of meal expenses.

Making work pay credit.  Most people already receive the benefit of the making work pay credit because the tax withheld from their paychecks is adjusted to account for it.  But the credit needs to be claimed on Schedule M so that the credit does not get added back into the tax bill due inadvertently.

State sales tax and income tax paid.  Taxpayers can either deduct the state income tax they pay or the state sales tax.  The IRS has a calculator to help determine what you will be able to claim for state sales tax depending on your income and the state you live in.  In most cases, the income tax turns out to be a better option, but you should double check to be sure.  In addition, the IRS charts are based on average every day expenses, but do not include major purchases such as cars, boats, RVs or even large amounts of supplies for a home improvement or construction project.  If you had major purchases, add those taxes to the IRS calculation and compare to the income tax number.  If you are using your income tax, make sure you also add any amount that you paid in a lump sum with your taxes last year.

This is, of course, only the tip of the iceberg.  For a more exhaustive look at deductible expenses, a commercial tax preparation software or service can help guide you through locating other less common deductions.