Most people know that they get tax breaks on their kids and on the mortgage interest they pay on their homes, but experts say many taxpayers leave a slew of other deductions and credits on the table that could potentially save them big bucks. Here are some things besides owning a home or having a child that can benefit you when tax time rolls around.
Enrolling in higher education. When the economy went south and unemployment rose, many people decided to go back to school. Although the cost of higher education is rising rapidly, a few tax breaks take some of the sting out of those tuition bills.
“I think a lot of people aren’t aware that if you have qualified tuition, you may very well qualify for one of the breaks,” says Jackie Perlman, tax analyst with the H&R Block Tax Institute. The lifetime learning credit gives you up to $2,000 against your tuition costs. “The good news is, you don’t even have to be in a degree program,” Perlman says, which could be a big help for anyone picking up classes on an ad-hoc basis while job-hunting. This credit is phased out above a certain income level; single filers making up to $61,000 and married filers with a combined income of up to $122,000 are eligible.
Another education credit is the American Opportunity Tax Credit, which gives up to $2,500 back for the costs of tuition and books for people enrolled in a post-secondary degree program. In addition to credits, Perlman says there also are numerous deductions available for room and board, travel, loan interest and other expenses associated with college, the qualifications for which vary and depend on income, degree and other factors.
Caring for an ailing parent. It’s a little trickier to declare a parent a dependent than a child, but it can be done, and tax experts say it’s worth looking into. “Taking care of dependent parents in this day and age is becoming more common,” says Mark Steber, chief tax officer at Jackson Hewitt Tax Service. The biggest litmus test is whether or not you provide 50% or more of their financial support. They don’t have to live with you in order to qualify; if you pay for their rent, for instance, that counts toward the total. If they are living with you, take into account “food, fair value of rent, utilities” and other day-to-day living expenses, Steber says.
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Teaching in a K-12 environment. Teachers, as well as aides, counselors and other people deemed “eligible educators” in IRS parlance can deduct up to $250 — even if they don’t itemize — for the cost of school supplies they have to buy out of pocket to stock their classrooms.
Paying for child care. “If you both work and pay for a sitter or child care facility, you’re eligible for the child care credit,” says Craig Wild, partner at Wild, Maney & Resnick, LLP. Depending on your income, you can deduct a percentage of what you pay for child care, up to a few thousand dollars per kid. Of course, keep in mind that if you deduct the cost of an in-home nanny or babysitter — even if it’s just the neighbor’s teenaged kid — you’ll be expected to pay the so-called “nanny tax” during the time you employ them.
Buying a house. “When you buy a house, you deduct all of the points in the year of the purchase,” says Dana Levit, owner of Paragon Financial Advisors. What’s more, if you buy a house and the seller pre-pays real estate costs that you reimburse them for as part of your closing costs, you also get to deduct those. If you refinance and have to pay points, you can deduct them incrementally over the life of the loan.
Surviving a natural disaster. If your home was struck by a flood, tornado, hurricane or other calamity, the disaster related casualty loss deduction is a slim silver lining, but Perlman says it’s one many people overlook because dealing with all the other aspects of a disaster aftermath can be so time consuming. “If your area was declared a federal disaster area and you sustained losses because of that you have the option of claiming it,” she says. Loss covered by insurance is disqualified. One benefit is that you can claim this on your prior year’s return — in other words, if your home is destroyed by a flood in March of this year, you can claim this deduction on your 2011 taxes. (If you lose property or valuables due to theft, you may also be able to deduct this loss, although the rules are a little more restrictive.)
Paying state income taxes. If you itemize your taxes, you can deduct the amount you paid in state income taxes the previous year, Levit says. This could be particularly beneficial for people who live in one state and work in another state, and have to pay taxes to both.