8 Novel, Overlooked Tax Deductions

With three months away from the IRS deadline, consider these deductions.

ByABC News
January 23, 2012, 7:21 AM

Jan. 23, 2012 -- intro: "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.

quicklist:title: Hobby Lossestext: 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.

quicklist:title: Credit for Dependent Caretext: 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.

quicklist:title: Animal Rescuetext: 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.