The end of the year is closing in, and that means that, if you haven’t already established a tax file, you need to start organizing receipts for the deductions you plan to take on your 2017 individual tax return.
Don’t forget about Uncle Sam’s sweet tax breaks, even the more unusual ones:
- Gambling. You can be taxed on gambling winnings, and that can include bingo earnings. Discuss with your accountant whether your losses, up to the amount of your winnings, can be claimed as an itemized deduction.
- Medical costs. This deduction requires some calculations. Your out-of-pocket expenses (meaning the total unreimbursed by insurance) need to reach a 10% threshold of your adjusted gross income before you can claim medical expenses. Consider your miscellaneous medical costs such as travel, cosmetic surgery required for reconstruction, abuse treatment, even pregnancy tests and wigs if they were prescribed for your wellbeing. Certain stop-smoking and weight-loss programs may also qualify. And there are special considerations for self-employed taxpayers.
- Charitable gifting. You can’t take deductions for donating your time, but you can deduct expenses involved in the time you spend working for a charity, for instance, if you’ve incurred travel costs during volunteering. And of course, there’s the deduction for cash gifts as well.
- Relocation expense. If you were forced to move to obtain a new job, you might meet the standard to deduct moving costs. This deduction could apply to students. And even shipping your pets to your new address may be allowable.
- Job-related expense. If you’re a delivery person, in the health care field or public safety fields, or even if you’re a professional sportsman, the cost and upkeep of required uniforms may be deductible if they aren’t suitable for everyday use. And if you’re a teacher, you may be entitled to claim the expense of classroom supplies for which you’re not reimbursed.
- Educational expenses. Uncle Sam is still encouraging you to seek higher education. Undergraduates should consider the American Opportunity Credit. Or if you’re in graduate classes or taking post-secondary classes without pursuing a degree, you might consider the Lifetime Learning Credit.
- Mortgage interest and refinancing points. Mortgage interest is usually deductible. And refinancing your mortgage might earn you a deduction for the refinance points, especially if the mortgage proceeds were designed to upgrade your home.
- Home improvements. If you’re thinking about investing in home improvements for energy efficiency, Uncle Sam is offering the Residential Energy Efficiency Property Credit for approved home updates. The material qualifications are stringent, so be sure to check with your suppliers and building contractor to verify that the upgrades meet the necessary standards.
- Child and other care credits. If you pay for after-school – or, in some cases, summer -child care so that you can continue working, this credit may be for you. And it can be a substantial one. It’s worth between 20% and 35% of your allowable expenses, depending on your income. Allowing expenses are limited to $3,000 for 1 qualifying child, and $6,000 for 2 or more.
- Military reservists’ travel expenses. Uncle Sam allows reserve forces and National Guard members to deduct certain expenses, such as lodging and half the cost of meals, when traveling more than 100 miles for work, including training exercises.
- Retirement accounts. Not only can some workers enjoy tax deductions on 401(k) and IRA contributions, but they may be able to claim the saver’s credit. Based on adjusted gross income, the credit may be good for up to $1,000 for individuals, and $2,000 for couples.
And now for your fiscal health warning: Like everything sweet, Uncle Sam’s deductions come with a bit of risk to your financial health. Deductions can trigger audits, especially if Uncle Sam thinks you might be overindulging a tad. To avoid the harmful side effects of too many sweets, when you take advantage of the tax breaks, do it under the supervision of a tax professional.