"Every year taxpayers are leaving money on the table by not claiming all the credits and deductions to which they are entitled," says Kathy Pickering, executive director of The Tax Institute at H&R Block. By some estimates, tax payers unnecessarily forfeit more than $1 billion every year. To be sure you're not one of them, don't overlook these credits and deductions.
You may be able to claim hobby-related expenses as deductions, says Mark Luscombe, principal analyst for tax and accounting for Riverwoods Illinois-based CCH. Let's say you're into model railroading, and that last year you bought $400 worth of miniature mountains, trees and gandy dancers. You can deduct some or all of that, plus some or all of the $250 you spent to attend the Little Railroaders of America convention. How much depends on whether your hobby qualifies as a business (it has to have showed a profit in three of five consecutive years). Even if fails to qualify, expenses still can be deducted up to the amount of hobby income.
|Credit for Dependent Care|
Most people think of this credit as applying only to, say, costs of daycare for children whose parents must work outside the home. But it also can apply to the cost of a child's day camp or to after-school programs and baby-sitting, provided these are related to the parents' need to work, says CCH's Mark Luscombe. But remember: You cannot claim the credit unless you have the proper documentation. You'll need the Social Security numbers of the people providing daycare, or the tax ID number of, say, the summer camp.
If your charity takes the form of rescuing animals, a 2011 tax court decision is good news for you, says Larchmont, N.Y., tax attorney Julian Block. Jan Van Dusen of Oakland had claimed a deduction of $12,068 for money spent to rescues of feral cats. The IRS at first denied her claim, arguing in part that the expenses were personal because she kept the cats at home. But Van Dusen prevailed. Jonathan Lovvorn, senior vice president of the Humane Society of the United States, says the case establishes that you can claim deductions for rescued animals cared for in your home, provided you can distinguish between expenses on them and expenses for your personal pets (keep separate receipts). You should also get a letter from an authorized non-profit confirming your home charity is under their auspices.
Let's say your employer gave you, at the time you were hired, a signing bonus contingent on your staying with the firm two years. Or perhaps, as a salesperson, you were given bonuses with the same proviso. If you didn't stay the minimum time and were forced to forfeit, you can deduct the bonuses, says Eric Lammert, a tax research specialist with the National Association for Tax Professionals. If the total forfeited is under $3,000, you can claim them as an itemized deduction. If it's more, you have a choice, he says: you can either take it as an itemized deduction or you can go back to the year you reported them as income, and re-run your return for that year minus that income, whichever is more advantageous to you.
|Points, Old & New|
Jeff Schnepper, author of "How to Pay Zero Taxes," says many taxpayers who've refinanced a mortgage don't appreciate that they can deduct old points as well as new. Any points you pay to refinance your home, he says, can be deducted over the life of the new loan on a monthly basis. But you can also deduct, in the year of a new refinancing, all unamortized points from an old refinancing. His example: You refinanced on June 1, 2010. You then refinanced again a year later. On your 2011 return you can deduct any points remaining from the 2010 loan.
If you're out of work and searching for a new job, says Jeff Schnepper, any search-related expenses are deductible, including postage and phone bills. If you find a job but have to move to take it, you may also be eligible to deduct some of your moving expenses, provided your new job is at least 50 miles farther from home than your old job. But you can only write off the expense if the job you're seeking is in the same field as the job you last had. Says Eric Lammert of the National Association of Tax Professionals, "Today, lots of people are getting laid off and going into a different profession. But expenses related to a job search in a new profession are not deductible, only ones related to your search for a job like the one you had." What was Congress' intent here? "I don't know what Congress had in mind when they drafted that," he says, "maybe keeping the slaves in their places?"
|Energy Conservation/Hybrid Vehicle Credits|
Kathy Pickering, executive director of the Tax Institute at H&R Block, says the tax credit for hybrid vehicles has expired. Taxpayers may still, however, claim a credit for 2011 a credit for purchases of plug-in electric drive vehicles, such as the Chevy Volt or Nissan Leaf. Although state and federal credits for certain energy-conservation home improvements expired December 31, tax expert Brent Hunsberger says credits may still be claimed for certain devices under the Residential Energy Efficiency Property Credit. The list includes heat pumps, home electricity-generating solar and wind systems, and fuel cells. Installation and preparation costs are covered, he says, and only the credit for fuel cells is capped.
This last one isn't a deduction, but it can save you money. You can get your tax return done for free through the IRS Free File program, designed for taxpayers who file electronically by the IRS in partnership with some 15 private software developers. It's open to anybody with an adjusted gross income of $57,000 or under. That's about 70 percent of all taxpayers, according to the IRS. For more information, go to irs.gov/freefile. Seniors, military and the poor may also be eligible for free tax prep provided at libraries, military bases, shopping malls and other sites by Volunteer Income Tax Assistance. To find the location nearest you, call 800-906-9887.