It’s that time of year again and we don’t mean Daylight Savings Time, March Madness, or the first day of Spring. Unfortunately, we’re talking about tax season. The elephant in the room is now sitting next to you as we now have less than a month to get our homework done and find out exactly how much, if any, the new tax laws will affect our annual returns. We’re here to help with our annual series on tax season tips.
Firstly, there have been some major changes in the tax law this year due to the administrations tax referendum, particularly if you are used to being able to deduct your state taxes, which are now capped at 10k. With that in mind here are some of the most commonly overlooked tax deductions to help you try to make up the difference.
- If you bought a car, boat or airplane, you are able to add the state sales tax you paid for it to the amount shown in IRS tables for your state, as long as the sales tax rate you paid doesn’t exceed the state’s general sales tax rate. You can do the same for any home building materials you purchased in the process of home improvements. The reason why these items are so easy to overlook is because most people don’t keep track of these expenses so there may be some receipt mining necessary. The IRS does have a calculator online to assist you with calculating the deduction on their website. Reply this article if you would like us to forward the direct URL to you. Back with another tomorrow.
- In many ways a tax credit is better than a tax deduction because it reduces your overall tax liability dollar per dollar. With that in mind missing even one tax deduction cost you more than missing any deduction that only lowers your overall gross income.With that in mind, unfortunately one of the most common and meaningful is also one of the most overlooked, The Child and dependent care credit. This credit allows you to take up to $5,000 of such expenses through a tax-favored reimbursement account at your place of employment.
Specifically, up to $6,000 in care expenses can qualify for the credit, but only the 5k from a tax favored account can’t be used, so if you were to run the maximum 5k through a qualified plan at your place of employment but spend even more for work related child care, you can claim the credit up to an extra $1,000. The net would be a cut in your tax bill by at least $200 using the minimum 20% of the expenses, this credit actually goes up for lower income households. You should consult your tax consultant to make sure you’re receiving this credit.
Back with another tomorrow.