Happy St. Patrick’s Day! Just like finding $20 in your coat pocket, getting a big tax refund can feel pretty lucky. Alas, luck has nothing to do with it! Knowing the tax deductions and credits available to you is a huge part of ensuring you get as much money back as possible. Luckily, TurboTax automatically checks for more than 350 deductions and credits. This month, we shared ten commonly overlooked tax deductions, but here are a few more to keep in mind.
Commonly Overlooked Tax Credits
- Energy Credits: The credit of 10% of cost up to $500 for windows, doors, insulation, roofs, nonsolar water heaters, air conditioning, and heating expired December 31, 2017, but you can still take a credit up to 30% of the cost of installing qualified residential alternative energy equipment, such as solar panels, solar hot water heaters, wind turbines, and geothermal heat pumps. Did you purchase an electric car by December 31, 2018? You can still get a tax credit of $7,500 for the purchase of your electric car.
- Education Credits: The American Opportunity Tax Credit provides a credit of up to $2,500 per student off the taxes you owe if you paid for eligible college expenses for yourself, your spouse, or your dependent. There’s also the Lifetime Learning Credit, that provides a credit of up to $2,000 per tax return for graduate studies and continuing education.
- Child and Dependent Care Credit: You may be entitled to a tax credit if your children are under the age of 13 (no age limit if disabled), and require childcare. This includes, but is not limited to, before and after school care programs, daycare, and day camps. Overnight and sleepover camps are not eligible. This credit also applies to any non-child dependents as long as they qualify. There are a few other qualifications, such as you have to have earned income, you must have paid for the care so that you could work or look for work, and you must provide the name, address, and ITIN of the provider. The amount of the credit ranges from 20% to 35% of up to $3,000 ($1,050) for one child, and up to $6,000 ($2,100) for two or more children. And while the credit is lower if you earn more income, it is not less than 20% no matter how much you earn.
Take advantage of every tax credit that is available to you, even the small ones, and you can increase your tax refund by a significant amount. And, hey, it must be your lucky day because we have a few more tax deductions to keep in mind!
- Sales and Local Tax Deduction: You are permitted to deduct either the state income tax paid or the state sales tax paid. You can choose either, but if you live in a state without a state income tax, it’s a no brainer. You would deduct the state sales tax you paid. You are free to choose the one that gives you the biggest tax deduction. TurboTax will choose the option that gives you the biggest tax deduction. One thing to note, under the new tax law, there is a cap of $10,000 on the total of state income tax or sales and local tax and property taxes that you can deduct. Prior to the new tax law, you could deduct the entire expenses in aggregate.
- Charitable Contributions: If you made any donations, no matter how small, remember to deduct them. It’s easy to forget the smaller amounts you contributed to various walks or races, but they add up quickly. Cash contributions will need a receipt as supporting documentation so remember to keep them throughout the year. If your contribution is greater than $250, you will also need a form of acknowledgment from the charity. You can’t deduct the value of your time when you volunteer, but you can deduct your travel at 14 cents per mile as well as any parking and tolls you paid. Keep a good record of your mileage, including the date, mileage, and purpose – as well as receipts for tolls and parking.
- Student Loan Interest Paid by Mom and Dad: In the past, if parents paid back a student loan incurred by their children, no one received a tax break. To get a tax deduction, the law said that you had to be both liable for the debt and paid for it yourself. The good news, now there’s an exception. If mom and dad pay back the student loan incurred by their children, the IRS treats it as though they gave the money to their child, who then paid the debt. So a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.
- Reinvested Dividends: This isn’t really a tax deduction, but it is a subtraction that can save you a lot of money. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares. Forgetting to include the reinvested dividends in your cost basis — which you subtract from the proceeds of the sale to determine your gain — means overpaying your taxes.
Don’t forget: with TurboTax, you are not required to know these tax laws. TurboTax will ask you simple questions, search over 350 tax deductions and credits, and give you the ones you are eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years’ experience to get your tax questions answered from the comfort of your home. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.