Gathering receipts and adding up tax-deductible expenses aren’t high on the to-do list — until you realize how much you can shave off of your tax bill.
It’s smart to itemize your expenses if they exceed the 2014 standard deduction of $6,200 for single filers, $12,400 for married filing jointly and $9,100 for heads of household. And while you may think you know all you can deduct, financial advisors say many people miss out on allowable deductions because they just don’t know about them.
“The tax code is complicated, and things change from year to year, and I think people just block it out,” said Cathy Pareto, a Coral Gables certified financial planner. “We find that many taxpayers do not take full advantage of little-known, miscellaneous, itemized tax deductions. By putting these to good use, you’ll be maximizing your tax returns.”
Here are some tips from local money experts on finding hidden tax deductions. Consult your tax preparer to determine your eligibility.
Overlooked charitable deductions: Keep track of your mileage and deduct the cost of transportation to charitable events, board meetings, volunteer work or fundraisers. “It’s kind of tedious to keep a log of travel expenses, so a lot of people won’t bother with it,” Pareto said. “But it can add up.” If you donate clothing, furniture or other goods worth more than $200, get a letter of acknowledgment from the charity, said Liz Morton, a certified public accountant with Neto Financial Services in Miami.
Home office: The good news is that this type of deduction has been simplified for 2014. Now you can take a standard deduction of $5 per square foot, up to $1,500. To get the deduction, it has to be your primary office space, and exclusively for your work. “You used to have to keep a detailed account of all of your expenses, but now it has been simplified,” Pareto said.
Healthcare insurance premiums: If you are employed, you can deduct the cost of medical insurance premiums that exceed 10 percent of your adjusted gross income. (The threshold is 7.5 percent if you or your spouse were born before Jan. 2, 1950.) If you are self-employed, check with your tax preparer to see if you are eligible to deduct your premiums.
Teacher supplies: Educators, including K-12 teachers, teacher aides, instructors or principals, can get an above-the-line tax deduction up to $250 for classroom supplies. Because it’s an above-the-line deduction, itemizing isn’t required. “A lot of teachers are unaware that they can deduct these out-of-pocket expenses,” Pareto said. “It’s a little of money, but it’s something.”
Financial advisor/tax planner fees: Deduct tax planning and investment expenses that exceed 2 percent of your adjusted gross income. This includes investment-related books and subscriptions, advice fees and safe deposit boxes. Expenses need to be invoiced, or deducted from your taxable accounts to be eligible, Pareto said.
Unreimbursed employee expenses: You can deduct certain out-of-pocket expenses that you pay in connection with your work, Pareto said. This can include business liability insurance, computer equipment, continuing education, professional dues and travel. Job-search expenses in your current line also can be deductible.
Moving your pet and you: You may be able to deduct job-related moving expenses, including shipping your pet. “Yes, your furry friends can each deduct a sum from your taxes if you choose to move your animals across the country, as they are considered personal effects,” Pareto said.
Overlooked medical deductions: Clarinet lessons are deductible if a doctor has recommended playing the instrument to correct an overbite, Pareto said. Other expenses that may be deductible, according to IRS publication 502, www.irs.gov/pub/irs-pdf/p502.pdf, are: support stockings, birth control pills, acupuncture, bandages, breast pumps, smoking-cessation programs and transportation to medical appointments. You can also deduct the cost of pregnancy test kits, contact lenses worn for medical reasons and wigs if you have lost hair due to a disease.
Weight loss programs: You can deduct the cost of weight loss programs as long as they’re treatments for a specific disease diagnosed by a physician, such as obesity, hypertension or heart disease, Pareto said.
Gambling losses: If you had a bad run at the roulette wheel, you’re in luck. Gamblers can deduct losses (just as winnings are taxable). Here’s the catch: you must keep a detailed diary of the kind of wager, where you placed it, who you were with, and how much you won or lost. “You have to be very meticulous in your record-keeping,” Pareto said.
Breast enlargement or reconstruction: You can’t deduct the cost of cosmetic surgery, but if you had reconstructive surgery after a medically required mastectomy, then surgery and implants are deductible, Pareto said.
Sales tax: If you made a big purchase like a car or a boat, you can itemize and deduct the sales tax, Morton said.
Higher education: You can take up to a $4,000 above-the-line deduction for higher education expenses, Morton said. The deduction begins to phase out at an adjusted gross income of $65,000 for single filers and $130,000 for joint filers. It is phased out completely at incomes over $80,000 for singles, and $160,000 for joint filers. The American Opportunity Tax Credit is an alternative that offers up to a $2,500 tax credit for higher education. The income phase-out ranges are $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint filers. No tax credits are available for those who are married filing separately, Morton said.
Energy efficient home improvements: You can get a tax credit for improving the energy efficiency in your home, such as putting in a new air conditioner, an Energy Star-rated roof or energy-efficient windows. See the rules at www.energystar.gov.
Mortgage insurance: Deduct your mortgage insurance premiums if you meet the income limits, Morton said. The income phase-out range is $100,000 to $109,000. The limits apply to all filers — married, single or heads of household.