At more than 16,845 pages long and ever-changing, the U.S tax code is one of the most difficult documents for the average American to understand. It’s no wonder many taxpayers overlook many opportunities that exist to reduce their tax liability each year. The commonly overlooked tax deductions listed below may help you to minimize unnecessary taxes as you prepare your return.
Job hunting
As a result of the tough economic times we have been facing, many taxpayers find themselves out of work. Expenses related to a job search may be tax deductible if they are itemized as miscellaneous expenses. From the cost of printing business cards and resumes to lodging and transportation costs if you must travel and stay overnight in search of work, job hunting expenditures are an often forgotten deduction opportunity. It is important to realize the expenses must be associated with the search for a job in a related field and must not be for costs associated with a new profession or your first job. Also, keep in mind that if you are forced to relocate and the new job is at least 50 miles farther from home than your previous job, you may also be eligible to deduct some of your moving expenses including mileage, parking and tolls. In addition, you have to remain employed full time for 39 weeks in the new location to qualify.
Casualty Loss
Hurricane Irene was responsible for inflicting a tremendous amount of physical damage on our area. If you were one of the many homeowners affected, you may qualify for a deduction. The IRS states that a casualty loss is the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. Generally, the deductibility of the loss incurred will be reduced by insurance reimbursements, an additional $100, and then by 10 percent of your adjusted gross income. Consider reviewing IRS Publication 547 and 584 for complete details regarding casualty and theft losses to determine if you qualify.
Medical expenses
While many taxpayers are aware that medical expenses may be deducted on your federal taxes if they are greater than 7.5 percent of your adjusted gross income, few are aware that you can claim medical expenses over 2 percent of your AGI on your New Jersey return. In fact, according to certified public accountant Gary Pesciotta, of Redvanly & Pesciotta of Howell, “Ninety percent of our new clients who were working with a previous accountant were not taking advantage of the opportunity because they thought their medical expenses had to meet the 7.5 percent federal threshold.” Remember, deductible items include but are not limited to physical therapy, braces, eyeglasses, co-payments and mileage for necessary travel, and provide an opportunity to deduct expenses even if you do not meet the higher federal hurdle.
Mortgage points
Mortgage rates were near historic lows for most of 2011 and as result, many homeowners were able to seize the opportunity and refinance. If you were one of the many taxpayers to refinance your home during the past year and paid any points, you may be able to deduct a portion of the cost. According to the IRS, the term “points” is used to describe certain charges paid, or treated as paid, by a borrower to obtain a home mortgage. Points may also be called loan origination fees, maximum loan charges, loan discount, or discount points and may be deductible over the life of the loan. For example, a 15 year loan may allow for one-fifteenth of the point costs to be deducted each year. If you simply financed a home purchase and did not refinance an existing loan, you may be able to deduct the origination costs in one lump sum. See IRS publication 936 for additional information.
While the IRS provides many resources and online publications, consider reviewing the details of your situation with your tax adviser to ensure you are taking full advantage of every deduction you are entitled to. Remember, when it comes to your income, it’s not what you make but rather what you keep that counts. Reviewing the deductions noted above may help you to keep more of your income this tax season.
Kurt J. Rossi, MBA, is a Certified Financial Planner Practitioner. He can be reached for questions at 732-280-7550 and kurt.rossi@Independentwm.com. LPL Financial Member FINRA/SIPC.
