5 Creative (And Legal) Tax Deductions
It’s that time of year again. The time that many Americans dread…Tax Time.
It’s the annual ritual of tracking down your receipts, bank statements, housing costs and charitable contributions. And after gathering the paperwork, we are required to record them on the government’s confusing and lengthy tax forms by the April deadline.
According to the tax preparation powerhouse company H&R Block, 20% of Americans who prepare their own taxes miss multiple benefits and lose out an average of $460 in either credits or deductions.
You may be one of these hard-working individuals who is leaving hundreds of dollars on the table when you file your tax return this year.
Get back all the money you deserve with these five creative and still legal tax deductions that you may not know about.
1. Charitable Cause
Everyone knows you can deduct charitable contributions. But did you also know that you can often deduct the cost of transportation to a charitable event? You are permitted to deduct those costs so long as:
• The charity qualifies under the IRS regulations
• The expenses are directly connected to the charity. In other words, you can’t turn one way of volunteering into a week-long vacation and expect to write off all the airfare and lodging costs
By the way, you might be able to deduct the cost of a babysitter if you’re paying her to watch the kids while you volunteer for a recognized charity. The Federal Tax Court has ruled that it’s acceptable to list the cost of a sitter as a charitable contribution on your return if you can prove that she or he was performing their job while you were volunteering.
Be sure to keep detailed records and document all costs when doing charity work. Be sure to accurately track your mileage and deduct it come tax time.
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2. Gambling Losses
Was it a bad year for you at the casino table, but a good year with lottery tickets? Believe it or not, you can deduct gambling losses with sufficient documentation, but only to the extent that you offset other winnings.
You’ll have to decide if this creative deduction is worth your time and there are definite parameters in this area of the tax code. The IRS requires you to keep a diary of your winnings and losses. This includes:
• Lotteries played
• Raffles entered
• horse and dog races bet on
• casino games
• poker games
• sports betting
Your diary must include:
• the date and type of the gambling activity
• the name and address of the places where you gamble
• the people you gambled with
• the amount you win and lose
There is one restriction on this tax break. This deduction requires you to report all the money you win as taxable income on your return.
3. Home Office
If you are self-employed or if you work from your home, you are eligible for a variety of tax deductions that you may not be aware of if they are related to your company. Just be sure that your workspace qualifies under the IRS definition. It must be a part of the home that is used "exclusively and regularly" as the principal place of business
For example, you may know that you can claim:
• A portion of the cost of phone and other utilities
• A part of internet connection
• A partial amount of rent for the home office
But did you know that you can creatively and legally also claim on your tax returns:
• Some office supplies
• Some painting and repairs of the home office space
• The cost of professional publication subscriptions related to the business
• Dues and memberships such as those you pay to belong to unions or another career organization
Notice that most of these are only a portion of the total cost of your internet, phone, rent, etc. So, you’ll want to be cautious about the amount you claim.
4. Disaster Support
Every year, hurricanes, tornados, earthquakes, and storms cause millions of dollars in damages. These catastrophes are sudden and unexpected such as floods, earthquakes, fires, and even vandalism.
If your home was struck by a natural disaster for which federal aid was issued, you could be eligible to deduct the uninsured costs you paid in getting your life back together, as well as some additional expenditures. In these difficult situations, the IRS may also grant additional time to file returns and pay taxes.
5. Job Hunting
Switched jobs in the last year? You may be able to deduct everything from cab fares to the cost of printing resumes and business cards and even some employment agency fees. The IRS allows deductions on some job-hunting expenses on a federal income tax return, even if you don’t get a new job.
However, there are some caveats.
• You won't be able to claim this deduction if you're looking for your first job
• Deductions are not available if you have been unemployed for an extended period of time
• You can only take a deduction for job search expenses if you're seeking a position within your current field
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Exploring Creative and Legal Tax Deductions
Follow these tips to be sure you don’t leave hundreds of dollars on the table when you file your tax return this year. Creative, little-known tax deductions and credits could make tax day a happier one for your family this year. Of course, it always makes sense to consult a tax professional before signing and filing your return.
For more money saving tax tips, check out our post on creative tax deductions.