Years ago, the fellow who was running the
We've added several new reminders this year and updated key details throughout this item for 2014.
STATE SALES TAXES
You may hear that this tax break expired . . . which it does regularly, only to be just as regularly revived by
In some cases, even filers who pay state income taxes can come out ahead with the sales tax choice. The
REINVESTED DIVIDENDS
This isn't a tax deduction, but it is an important subtraction that can save you a bundle. And former
If, like most investors, you have mutual fund dividends automatically used to buy extra shares, remember that each reinvestment increases your tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include reinvested dividends in your basis results in double taxation of the dividends--once in the year when they were paid out and immediately reinvested and later when they're included in the proceeds of the sale.
Don't make that costly mistake.
If you're not sure what your basis is, ask the fund for help. Funds often report to investors the tax basis of shares redeemed during the year. In fact, for the sale of shares purchased in 2012 and later years, funds must report the basis to investors and to the
OUT-OF-POCKET CHARITABLE CONTRIBUTIONS
It's hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub).
But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization's soup kitchen and stamps you buy for a school's fund-raising mailing count as charitable contributions. Keep your receipts. If your contribution totals more than
STUDENT-LOAN INTEREST PAID BY MOM AND DAD
Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child's student loans, the
JOB-HUNTING COSTS
If you're among the millions of unemployed Americans who were looking for a job in 2014, we hope you were successful . . . and that you kept track of your job-search expenses or can reconstruct them. If you were looking for a position in the same line of work as your current or most recent job, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn't land a new job. But such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. (Job-hunting expenses incurred while looking for your first job don't qualify.) Deductible costs include, but aren't limited to:
- Transportation expenses incurred as part of the job search, including
56 cents a mile for driving your own car plus parking and tolls - Food and lodging expenses if your search takes you away from home overnight
- Cab fares
- Employment agency fees
- Costs of printing resumes, business cards, postage, and advertising.
MOVING EXPENSES TO GET YOUR FIRST JOb
Although job-hunting expenses are not deductible when looking for your first job, moving expenses to get to that job are. And you get this write-off even if you don't itemize.
To qualify for the deduction, your first job must be at least 50 miles away from your old home. If you qualify, you can deduct the cost of getting yourself and your household goods to the new area. If you drove your own car on a 2014 move, deduct
MILITARY RESERVISTS' TRAVEL EXPENSES
Members of the
DEDUCTION OF MEDICARE PREMIUMS FOR THE SELF-EMPLOYED
Folks who continue to run their own businesses after qualifying for
CHILD-CARE CREDIT
A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that's subject to tax. In the 25% bracket, each dollar of deductions is worth a quarter; each dollar of credits is worth a greenback.
You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your boss offers a child care reimbursement account--which allows you to pay for the child care with pretax dollars--that's likely to be an even better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only amounts paid for the care of children younger than age 13 count.)
You can't double dip. Expenses paid through a plan can't also be used to generate the tax credit. But get this: Although only
ESTATE TAX ON INCOME IN RESPECT OF A DECEDENT
This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.
Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let's say you inherited a
STATE TAX PAID LAST SPRING
Did you owe tax when you filed your 2013 state income tax return in the spring of 2014? Then, for goodness' sake, remember to include that amount in your state-tax deduction on your 2014 federal return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments during the year.
REFINANCING POINTS
When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. That means you can deduct 1/30th of the points a year if it's a 30-year mortgage. That's
Even more important, in the year you pay off the loan--because you sell the house or refinance again--you get to deduct all as-yet-undeducted points. There's one exception to this sweet rule: If you refinance a refinanced loan with the same lender, you add the points paid on the latest deal to the leftovers from the previous refinancing, then deduct that amount gradually over the life of the new loan. A pain? Yes, but at least you'll be compensated for the hassle.
JURY PAY TURNED OVER TO YOUR EMPLOYER
Many employers continue to pay employees' full salary while they serve on jury duty, and some impose a quid pro quo: The employees have to turn over their jury pay to the company coffers. The only problem is that the
But how do you do it? There's no line on the Form 1040 labeled "jury fees." Instead, the write-off goes on line 36, which purports to be for simply totaling up deductions that get their own lines. Add your jury fees to the total of your other write-offs and write "jury pay" on the dotted line.
AMERICAN OPPORTUNITY CREDIt
Unlike the Hope Credit that this one replaced, the American Opportunity Credit is good for all four years of college, not just the first two. Don't shortchange yourself by missing this critical difference. This tax credit is based on 100% of the first
College credits aren't just for youngsters, nor are they limited to just the first four years of college. The Lifetime Learning credit can be claimed for any number of years and can be used to offset the cost of higher education for yourself or your spouse . . . not just for your children.
The credit is worth up to
DEDUCT THOSE BLASTED BAGGAGE FEES
Airlines seem to revel in driving travelers batty with extra fees for baggage, online booking and for changing travel plans. Such fees add up to billions of dollars each year. If you get burned, maybe Uncle Sam will help ease the pain. If you're self-employed and travelling on business, be sure to add those costs to your deductible travel expenses.
CREDITS FOR ENERGY-SAVING HOME IMPROVEMENTS
There's no longer a tax credit to encourage homeowners to save energy by, for example, installing storm windows and insulation. But the law still offers a powerful incentive for those who install qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Your credit can be 30% of the total cost (including labor) of such systems installed through 2016.
ADDITIONAL BONUS DEPRECIATION
Business owners--including those who run businesses out of their homes--have to stay on their toes to capture tax breaks for buying new equipment. The rules seem to be constantly shifting as
Perhaps even more valuable, though, is another break: supercharged "expensing," which basically lets you write off the full cost of qualifying assets in the year you put them into service. The dollar limit for expensing seems to change every year. For 2013 purchases, it applied to up to
BREAK ON THE SALE OF DEMUTUALIZED STOCK
In 2013, the
In the meantime, if you sold stock in 2014 that you received in a demutualization, you have a couple of choices. Claim a basis and, if the
SOCIAL SECURITY TAXES YOU PAY
This doesn't work for employees. You can't deduct the 7.65% of pay that's siphoned off for
WAIVER OF PENALTY FOR THE NEWLY RETIRED
This isn't a deduction, but it can save you money if it protects you from a penalty. Because our tax system operates on a pay-as-you earn basis, taxpayers typically must pay 90% of what they owe during the year via withholding or estimated tax payments. If you don't, and you owe more than
There are several exceptions to the penalty, including a little-known one that can protect taxpayers age 62 and older in the year they retire and the following year. You can request a waiver of the penalty--using Form 2210--if you have reasonable cause, such as not realizing you had to shift to estimated tax payments after a lifetime of meeting your obligation via withholding from your paychecks.
AMORTIZING BOND PREMIUMS
If you purchased a taxable bond for more than its face value--as you might have to capture a yield higher than current market rates deliver -- Uncle Sam will effectively help you pay that premium. That's only fair, since the
You have two choices about how to handle the premium.
- You can amortize it over the life of the bond by taking each year's share of the premium and subtracting it from the amount of taxable interest from the bond you report on your tax return. Each year you also reduce your tax basis for the bond by the amount of that year's amortization.
- Alternatively, you can ignore the premium until you sell or redeem the bond. At that time, the full premium will be included in your tax basis so it will reduce the taxable gain or increase the taxable loss dollar for dollar.
The amortization route can be a pain, since it's up to you to both figure how each year's share and keep track of the declining basis. But it could be more valuable, since the interest you don't report will avoid being taxed in your top tax bracket for the year--as high as 43.4%, while the capital gain you reduce by waiting until you sell or redeem the bond would only be taxed at 0%, 15% or 20%.
If you buy a tax-free municipal bond at a premium, you must use the amortization method and reduce your basis each year . . . but you don't get to deduct the amount amortized. After all, the
DON'T UNNECESSARILY REPORT A STATE INCOME TAX REFUND
There's a line on the tax form for reporting a state income tax refund, but most people who get refunds can simply ignore it even though the state sent the
LEGAL FEES PAID TO SECURE ALIMONY
Although legal fees and court costs involved in a divorce are generally nondeductible personal expenses, you may be able to deduct the part of your attorney's bill. Since alimony is taxable income, you can deduct the part of the lawyer's fee that is attributable to setting the amount. You can also deduct the portion of the fee that is attributable to tax advice. You must itemize to get any tax savings here, and these costs fall into the category of miscellaneous expenses that are deductible only to the extent that the total exceeds 2% of your adjusted gross income. Still, be sure your attorney provides a detailed statement that breaks down his fee so you can tell how much of it may qualify for a tax-saving deduction.
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Kevin McCormally is Editorial Director of Kiplinger Washington Editors. .