Recent reports show taxpayers overpay by nearly a billion dollars each year because they take advantage of all the credits, deductions and income adjustments they’re entitled to. Here are the 12 most common deductions tax filers often overlook. Be sure to check with your accountant to make sure they apply to you and your dental practice.
- State sales tax: Taxpayers can deduct state income tax or state sales tax from their total income. The ability to deduct sales tax is fairly new, so not everyone knows about it. If you’re lucky enough to live in one of the few states without an income tax, it’s a great deduction to take advantage of, especially if you’ve kept your receipts.
- Out-of-pocket charitable expenses: You may not realize out-of-pocket costs related to charity work can be deducted. The limit on charitable contributions is now 60% of adjusted gross income (up from 50 percent). Travel, lodging, meals and sponsoring sports teams all count, as they relate to volunteer work.
- Moving expenses for your first job: Most taxpayers know moving expenses related to relocating for a new job are deductible. However, recent college graduates who move more than 50 miles from home are eligible to write off their moving costs as well.
- Job-hunting costs: Looking for your next associateship? Moving to a new practice? Costs associated with looking for a new job are deductible. These can include resume preparation, employment agencies, air travel, taxis, printing costs, and more, even if you didn’t land the job. However, this only applies if your total miscellaneous itemized expenses exceed 2 percent of adjusted gross income.
- Summer child care expenses: A lesser-known fact: parents can claim the credit for child care expenses incurred over the summer.
- Mortgage refinancing points: When you buy a home, you may deduct the total points paid to obtain your mortgage all at once. When you refinance, you can deduct the points as well—with a twist. Refinancing points must be deducted over the life of the loan. When you sell or pay off the loan, you’re allowed to deduct all of the points not yet deducted (unless you refinance with the same lender).
- Deductions on home equity loans and lines of credit with higher limits: As of 2018, the interest on home equity loans used for anything other than capital improvements on your primary home are no longer deductible. Interest-deductible HELOCs (Home Equity Line of Credit) and second mortgages are available to homeowners if they (a) use the loan to make “substantial improvements” to their home, and (b) the combined total of their first mortgage balance and their HELOC or second mortgage does not exceed $750,000.
- Lifetime learning credit: Thinking of honing your business acumen to benefit your dental practice? This credit is available to anyone taking college classes (whether towards a degree or not), and is good for a 20 percent credit on tuition expenses, with a maximum of $2,000 on the first $10,000. You can claim the credit on your tax return if you, your spouse or your dependents are enrolled at an eligible institution and you were responsible for paying college expenses.
- Child care credit: Working people used to be limited to a $5,000 child care credit through their employer-based reimbursement account. Now, up to $6,000 can qualify for the credit (although the $5,000 still applies to reimbursement accounts).
- The child tax credit has doubled: From $1,000 to $2,000 per child under the age of 17. Eligibility income limits have substantially increased from $75,000 to $200,000 (single filers) and from $110,000 to $400,000 (married filing jointly). Even taxpayers with zero tax liability are eligible for a $1,400 credit per child.
- Lost deduction from prior years: Even if you didn’t take advantage of a deduction last year, it doesn’t mean all is lost. Many deductions can be carried over to later years if they’re not used in the year they occur. You’ll need to speak with your tax preparer for details, but some examples of holdover deductions include business losses from your dental practice and charitable contributions.
This list of available credits and deductions, a little research and a skilled tax preparer can go a long way towards reducing your tax burden and saving you more money.
This information was provided from US Bank, an endorsed company of ADA Member Advantage. Learn more about US Bank.