- Days left

7 Tax Deductions and Credits That Many People Often Overlook

Whether you love them or despise them, taxes are one of life's only two sure things, at least according to Benjamin Franklin.

But for many, having taxes taken out of their paycheck on a weekly, bi-weekly, or monthly basis is their only form of savings during the year. Although the personal savings rate in the U.S. of 4.2% is off its historic lows, relative to other nations around the world it's pretty low. This means that despite the unpopularity of taxes, they can deliver quite a pop to a number of Americans come February, when tax refunds begin to trickle in.

Source: Stockmonkeys.com, Flickr.

Yet for all the different types of tax deductions and credits available, each and every year millions of Americans, even those with the help of tax-prepping software or the assistance of a tax professional, will miss a deduction or credit that they are entitled to. You can blame a lot of this on the tax code, which changes every year, as well as the fact that the U.S. tax code would require nearly 74,000 regular 8.5-by-11-inch printed pages to explain, based on statistics from the CCH Standard Federal Tax Reporter.


With that in mind, today I want to examine seven commonly overlooked tax deductions and credits that you should be especially on the lookout for when you file your taxes for the previous year on or before April 15. Here they are, in no particular order.

1. Energy-efficient home improvements
Have you ever completed any home-improvement projects that made your home more energy efficient? Perhaps new insulated windows, new doors, or a new roof? The good news is the Non-Business Energy Property Credit allows you to claim up to 10% the cost of these repairs (with windows not to exceed a $200 credit) up to a maximum lifetime credit of $500. In other words, if you claimed $300 on this credit in 2011, you may still claim up to an additional $200, but as the IRS's website warns, be careful to ensure that you have the manufacturer's credit certification statement. Otherwise, the improvement may not qualify.

In addition, the Residential Energy Efficient Property Credit, which runs through 2016, allows you to write off 30% of your costs to put alternative energy equipment in your home, such as solar water heaters or wind turbines. There is no limit on the tax credit you can receive here, and better yet, you can carry the credit forward until it's used up.

2. Self-employed health insurance premiums
Taxes for self-employed people can be confusing even with the help of tax preparation software -- trust me, I speak from experience -- but one commonly overlooked deduction that self-employed people often miss are health insurance premiums.

For non-self-employed people, health, dental, and other medical expenses need to equate to at least 7.5% of adjusted gross income before they receive any sort of benefit. For practically all self-employed people, this rule doesn't apply. In fact, most won't even need to itemize their deductions, like non-self-employed people. Instead, they can simply deduct all medical and dental expenses paid out of their own pocket in 2013 and reap the rewards of their self-employment.

Source: USGS, Flickr.

3. Casualty, disaster, and theft losses
Have you ever been the victim of a natural disaster such as an earthquake or tornado, or had items stolen from you? If the answer is yes, you may be eligible to claim these different types of losses on your tax return. Also, if you're in a city or county that's been declared a federal disaster area, then you're automatically eligible to claim this loss.

Now keep in mind that not all losses are considered eligible to be claimed on your tax return. If it's a loss that's created by normal wear and tear, you can forget about it! Similarly, if your insurance company provides you with a reimbursement on your loss, the most you can do is claim the difference on the reimbursement value versus what the item was currently valued at (if there's even a discrepancy in the first place).

4. State sales tax deductions
Most people in the U.S. pay a state income tax and get some form of deduction when they file their taxes based on that state income tax. However, in states that have high state sales taxes, or no income tax at all, some people are overlooking the ability to itemize their sales tax deduction for significantly larger savings.

Tax-prepping software that uses pre-determined IRS calculations will often choose a sales tax deduction value based on your income. However, sales tax paid on just a couple of big-ticket items could be enough to tip the scales heavily in favor of itemizing your taxes to claim a much bigger deduction.

5. Caring for a parent
Most people are aware of their ability to claim tax credits for child care, but many often forget that they can also claim a total annual expenses benefit of $3,000 when it comes to taking care of a parent.

According to the IRS, this credit is based on a percentage of the amount of work-related expenses you pay to a caregiver to take care of your parent. The IRS qualifies this Dependent Care Credit as any spouse or dependents who are physically or mentally incapable of taking care of themselves and who spend at least eight hours per day in your household, and the deduction is based on your annual income.

6. Refinancing points
Did you purchase a home or refinance your loan sometime in the past year, or two ... or 10? If you paid points on your mortgage or loan, then you may be entitled to amortize these points over the life of your loan.

For example, let's assume you paid $3,600 in "points" when you purchased your home. Unfortunately, you can't deduct the $3,600 upfront, since those fees were incorporated into the life of your loan. However, you'll be allowed to deduct a maximum of $120 per year on your taxes over the life of the 30-year loan as well as the full balance remaining on your points if you decide to pay off your loan early.

7. Earned Income Tax Credit
Finally, the Earned Income Tax Credit, or EITC, is a benefit given to American workers who have low-to-moderate income, which helps reduce their taxable income and may even result in a refund.

It might seem like common sense for taxpayers to look toward this deduction, since it's been around for years, but the IRS notes that a whopping 20% to 25% of qualified individuals aren't receiving this benefit. One reason, of course, is that you have to file a tax return with the IRS for the EITC even if you owe no tax or aren't normally required to file a return, and we know this probably isn't being done. There are strict limits on who qualifies for the EITC based on their adjusted-gross income, which can be viewed here for 2013.

In addition to tax refunds, Social Security is a primary driver of retirement income. Are you using this social tool to your advantage?
Social Security plays a key role in your financial security. In our brand-new free report, "Make Social Security Work Harder For You," our retirement experts give their insight on making the key decisions that will help ensure a more comfortable retirement for you and your family. Click here to get your free copy today.

The article 7 Tax Deductions and Credits That Many People Often Overlook originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong , track every pick he makes under the screen name TrackUltraLong , and check him out on Twitter, where he goes by the handle @TMFUltraLong . Try any of our Foolish newsletter services free for 30 days . We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Basics Of The Stock Market

Stock Market 101 - everything you need to know but were afraid to ask!

View Course »

TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.

Add a Comment

*0 / 3000 Character Maximum