Top Ten Most Overlooked Tax Deductions

Tax Act

Each year the Internal Revenue Service (IRS) reports the most common tax deductions taxpayers forget about when submitting their income tax return.  Among one of the most common mistakes taxpayers make is they forget to place their Social Security number on the form or they make a mistake when entering the information.

It is possible for some taxpayers to be overpaying so it helps to make sure you review deductions available and understand how to claim them correctly to obtain the credit.  Below is a list of the most common deductions overlooked by taxpayers:

  1. State sales tax: Taxpayers who live in a state that doesn’t impose an income tax often forget to claim this deduction.  The IRS has a table that can be used to help you figure out the amount to deduct.
  2. Charitable contributions: This includes charitable deductions from your paycheck, items purchased for a charitable event such as a fundraiser or if you drove your vehicle for charity, the IRS lets you deduct a certain amount per mile.  Save all receipts and if you make a donation of 250 or more, get written confirmation from the charity.
  3. Student loan interest: If mom or dad paid for a student loan for a child not claimed as a dependent, the interest can be claimed on your return.
  4. Moving expenses: If you moved to take a new job, the expenses related may be deductible.
  5. Child care credit: Having a credit can help reduce taxes owed.  If your expense is paid through an account at work, it is easy to overlook but if you pay several thousand for child care it helps reduce taxes owed.
  6. Earned income tax credit: While the rules to this may be complex, many taxpayers don’t claim it.  This is considered a refundable tax credit instead of a deduction.
  7. State tax paid last spring: If you paid state income taxes in quarterly payments or had them withheld, they can be deducted on your current return.
  8. Energy-saving home improvement credit: This is a credit that is 30 percent equal to the cost of energy-saving improvements.  The IRS provides details on qualifications for this credit.
  9. Jury duty payments:  If your employer required you to give them payments you receive for jury duty, you can claim the amount on your return.
  10. Refinancing points: There are points that can be deducted when you refinance your home at one time.  This depends on how many years are on your mortgage and you can deduct points that are remaining if you sell you r home after paying if off or refinance again.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to loans.

When is Borrowing from Your 401k a Good Idea?

Tax Act

While many financial experts claim you should avoid borrowing from your 401k as much as possible, it may be your only financial life line in certain situations.  Because so many people often don’t have enough or anything at all saved toward retirement, financial experts claim you could be setting yourself up for financial disaster when you are ready to retire.  On the other hand, depending on your situation, it may make sense to borrow.

If you have considered other financial options such as borrowing from friends, family or home equity line of credit, a loan against your 401k may be your last option.  An emergency that may be okay to borrow includes the need of living essentials such as food, grocery items and keeping utilities from being disconnected.  If you have other obligations or are being harassed by debt collectors for items such as medical bills or credit card bills, negotiate a payment plan that will give you time to make payments before considering using 401k funds to pay them off.

It you have a secure job it may be safe to borrow because it helps in repaying the loan amount.  You may have to consider payment amounts that would be applied to what you borrowed if they are automatically deducted from your paycheck.  Also keep in mind; you may be required to pay it back during a set time period. If you leave your job before the loan is repaid, you’ll have 60 days to pay what is due.  At this point, the money taken out may be subject to a 10 percent tax penalty.

You plan to use what you borrow for a smart investment.  This includes using the money to purchase a home, start a business or further your education.  For homebuyers, the repayment period is extended.  Make sure business decisions are thoroughly researched and educational credentials will have additional value for the workplace.

If you are unable to obtain a loan at an affordable rate, borrowing from your 401k may be a low-cost loan option.  People who have filed bankruptcy in the past, for example, may not qualify for a loan at a lower rate. Remember, you may still have to pay penalties for touching your 401k before your retirement age.  You may save interest in choosing to borrow against your 401k but it may not make up for taking the funds out in the beginning.

Andrew writes frequently about personal finance as well as issues effecting both consumers and small businesses, covering everything from credit cards to mortgages to tax reduction.