When it comes to taxes, what you don’t know can hurt you, especially if it means missing out on a deduction that can lower your tax bill.
With tax day approaching, it’s time to review a few commonly missed tax deductions for 2015, to make sure you’re subtracting all that you can from your income. While the government might be happy to get a few extra dollars from you during tax season, odds are you probably need that money more than it does. Some tax deductions for 2015 are available only to people who itemize or complete Schedule A for Form 1040, while others are available for people who take the standard deduction, too.
State or Local Taxes
Itemize your deductions? Then you want to make sure you’re taking off the amount you paid in the form of state and local taxes. Depending on how much tax you paid and where you live, the IRS gives you a few options for deducting state and local taxes. You can deduct the amount you paid in income taxes or, if you live in an area without income tax, deduct the amount you paid in sales tax. Choose the amount that would give you the biggest deduction and remember that you can only claim one or the other, not both.
You can also deduct the amount of any donations you made to charity if you complete Schedule A. One thing people often miss when deducting donations to charity is that those donations don’t have to be financial. If you brought a bag or two of clothing to the local Goodwill, you can deduct the fair market value of those clothes from your taxes. You can also deduct the cost of items donated to a bake sale or other fund raising event, as long the organization meets the IRS’ rules. The IRS has an online quiz that can help you figure out if you can deduct your donations.
The Cost of School
College is expensive, even if you’re using student loans or grants to pay for it. To help ease the burden of paying for school, the IRS lets you deduct some expenses or claim a tax credit for your tuition. You can either claim the tuition and fees deduction, which subtracts the amount you paid for school from your total income, or the lifetime learning credit or American opportunity credit. Credits are subtracted from the amount of tax you owe instead of from your income. You don’t have to itemize to claim either a tuition and fees deduction or a credit, but you can’t claim both.
Another school related deduction you might be able to claim is the student loan interest deduction. Like the tuition and fees deduction, you don’t have to fill out Schedule A to claim it. The loan does have to be in your name, though, meaning that a student can claim the deduction, even if his or her parents are paying the loan.
Health care is also expensive. Fortunately, some of your health care costs can be deductible. You can deduct your medical expenses that exceed 10 percent of your income, if you itemize. The IRS has a broad definition of what qualifies as a medical expense, too. For example, you can deduct the cost of gasoline used to drive you to and from the doctor’s office.
Getting as large of a refund as possible can help you reach your financial goals in 2015. Use your refund to pay down debt or to start saving for your next financial goal.
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