It’s tax time! And if you want to get the most from Uncle Sam, there are certain credits and deductions you shouldn’t leave on the table. Whether you are a single mom, business owner, newlywed or a college student, these tips may help boost your tax refund this tax season.
Tip #1 Bad Debt ExpenseDoes Cousin Pete owe you money? Deduct it on your tax return! This can get a little sticky especially if you are expected to see him at the next family reunion. If you tried over and over again to get your money back, the IRS will allow you to take a nonbusiness bad debt deduction on your tax return. A nonbusiness bad debt is a debt that is not in connection with a taxpayer’s trade or business on the tax return.In order to qualify, during the time the money was loaned there must have been a clear understanding the amount was given with the expectation to be paid back and was not intended to be a gift. The debt must be totally worthless in order to be deductible. This could be in the event Cousin Pete has filed for bankruptcy, he has foreclosed on his home, or there are other indications he will not repay the loan.
Tip #2 – IRA DeductionLooking to save a little for retirement? Well, consider stashing some cash away in a traditional individual retirement account (IRA). An IRA is a great tool to save for retirement and also provides for a great tax deduction. The best thing is – if you didn’t get a chance to open an IRA before December 31, the IRS will allow you to contribute up to the tax deadline, which is April 17 this year! So there is still time to take advantage of this tax deduction. If you are under the age of 70 ½ and have taxable compensation you may be able to deduct your contributions on your tax return. Generally, the amount you can deduct is the lesser of $5,000 ($6,000 if you are 50 or older) or your taxable compensation.
Tip #3 – Moving ExpensesStarting a new job or pursuing a self employment opportunity? You may be able to deduct some or all of your moving expenses. Qualified moving expenses include airfare or mileage and the cost of packing and transporting household goods. If your relocation is at least 50 miles from your former home to your new place of work and you expect to work there for a while than you may be able deduct these expenses on your tax return.
Tip #4 – Employee Business ExpensesAre you paying out of pocket for employee related expenses? Whether you are incurring business mileage to a client’s place of business, paying for the cost or cleaning of uniforms, or incurring travel costs that have been unreimbursed by your employer, these expenses can be claimed on your tax return. In order to claim these expenses you must complete Form 2106 and attached it to your Form 1040. Keep in mind you must itemize your deductions on a Schedule A and your expenses must exceed 2% of your adjusted gross income (AGI) in order to qualify.
Tip #5 – CharityIn the giving spirit? Why not allow Uncle Sam give something back to you? Charitable contributions can be in the form of both cash or property. These donations require a record of substantiation such as a bank record or statement from the charitable organization. Non-cash should be deducted at fair market value, typically the cost it can be sold for in a thrift store. In addition, if you incur car expenses directly related to giving charitable services, you can deduct actual expenses for gas or oil, or deduct 14 cents (2011) per mile for each mile driven. So whether you are donating goods to Red Cross or donating your time at the Boys and Girls Club, your transportation costs may help to reduce your tax liability.
Tip #6 American Opportunity CreditFurthering your education? The IRS will grant you a tax credit to somewhat ease the burden for the first four years of postsecondary education through the American Opportunity Credit. Qualified expenses include tuition, fees, equipment, supplies and course materials incurred during the taxable year. The best thing about this credit is it is refundable up to $1,000! So even if you did not have any federal income tax withheld, you may still be able to obtain a tax refund up to $1,000.
Tip #7 Earned Income CreditIf you are self employed, an employee, or engaged in farming activities for profit, you may qualify for the earned income tax credit. The earned income tax credit is a refundable credit, which means you can obtain a tax refund, even if you do not have a tax liability or did not have federal income tax withheld. In order to qualify, you must have wages less than $49,078 for the taxable year, have a valid social security number and be between the ages of 25 but under 65 at the end of the year. Keep in mind, the amount of earned income tax credit depends on your filing status, whether you have children, the number of children and your earnings for the year.
Kemberley Washington is a certified public accountant and a business professor at Dillard University. She writes the personal finance column “Money, Power, Respect” for The New Orleans Tribune and Tribunetalk.com. Follow her on Twitter or subscribe to her blog at kemberley.com.