Uncategorized March 1, 2021

6 Tax Time Tips

 

To paraphrase a popular adage, the only two certainties in life are death and taxes. While tax time can be stressful for some people, having certain knowledge ahead of time can soften some of the financial blow. We’re referring to lesser-known tax deductions. As you gather paperwork to file your 2020 taxes, keep these more obscure deductions in mind:

Sales Taxes

As you may or may not know, you may elect to deduct sales taxes or state income taxes off your federal income tax. The savings can really add up, if you made a significant purchase like an engagement ring or a vehicle in 2020.

Health Insurance Premiums

Feeling the pinch from your healthcare spending? The IRS recognizes the burden health insurance premiums can pose. Deductible medical expenses have to surpass 7.5% of your adjusted gross income (AGI)in order to qualify as itemized deductions for 2020. However, if you’re self-employed with private health insurance coverage, you might be able to deduct the full amount of these costs. This factors into your adjusted gross income rather as opposed to an itemized deduction.

Classroom Supplies

It’s not unusual for educators to purchase decorations and basics for their classrooms with their own money. The IRS takes this reality into account. For instance, it allows qualified K-12 educators to deduct up to $250 annually, to offset the cost of materials. That gets subtracted from your income, so you can take the deduction even if you don’t itemize.

Charitable Gifts

Beyond writing a check to a charity, did you know there are other ways to lower your tax bill? Out-of-pocket expenses to benefit such an organization also qualify. For example, if you donate a painting you created for a charity fundraiser, you can deduct the cost of the supplies. Keep related receipts on hand in case you get audited. (That’s a good best practice for anyone to follow.)

Lifetime Learning

The tax code may offer some relief for college students, but they aren’t the only ones who might get these perks. The Lifetime Learning credit can provide up to $2,000 per year, taking off 20% of the first $10,000 spent on coursework after high school.

Looking for Work

Were you among the millions laid off in 2020 around the country? Losing your job is stressful in and of itself and the costs associated with finding a new one can really pile up. Add relocation into the mix, and it can really break the bank. There’s good news, however. Per the IRS, if you moved more than 50 miles, you could deduct 23 cents per mile of the cost of getting to your new home. That includes parking fees and tolls for driving your own car.

A word of caution: If you have specific questions or concerns, it’s best to consult with a qualified tax professional, like an accountant or CPA. He or she will know how to maximize your deductions while keeping the IRS happy. Here’s to smooth sailing come April 15!