Taxes 101: Don't Overlook These Tax Credits, Deductions

Feb. 14, 2011 — -- Today is the first day that the IRS is allowing people who itemize their deductions to file their tax returns.

The agency had needed the extra time to reprogram its computers because of changes in the tax code.

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Mellody Hobson, "Good Morning America" personal finance contributor and president of Ariel Investments, Inc., appeared on "GMA" today to answer questions about the most overlooked deductions and tax credits.

Q: How is a credit different from a deduction?

A: A tax credit actually reduces your taxes, dollar for dollar, but a tax deduction just decreases your taxable income, Hobson said.

For example, with a $1,000 tax credit, you would actually owe $1,000 less in taxes. With a deduction, depending on what tax bracket you are in -- for example, if you are in the 25 percent tax bracket -- a $1,000 deduction would take $250 off of your tax bill, she said. You can claim a tax credit even if you don't itemize your taxes, she added.

Q: What is one of the most over-looked tax deductions?

A: With more than 70,000 pages in the tax code, it's easy to understand how someone could miss a tax deduction. Some 46 million people claim about $1 trillion in itemized deductions, Hobson said. Roughly double that number use standardized deductions and they claim another $700 billion, she added.

If you are among the approximately 10 percent of Americans who were jobless last year, you may have a tax deduction coming, she said. Job hunting expenses can be deducted, provided your total miscellaneous itemized deductions are greater than 2 percent of your adjusted gross income, she said. She added that such expenses could include the cost of printing resumes, food and cab fares. But the catch is that you must be looking for a job in the same field as when you last worked, she said.