It important when dealing with the IRS to make every effort to lower your tax burden, however, you must stay within the guidelines that are laid out in the tax laws of your state and the United States Statutes. Some taxpayers are missing some of the deductions due to them. Research has shown that the biggest mistake they make when completing their return is their social security number. The tax laws are complicated and there are so many deductions, it makes your head spin. Here is Part Two of some commonly overlooked deductions:
Child Care Credit: The IRS provides tax benefits in the form of a credit for child care expenses incurred by taxpayers deemed to be gainfully employed. A credit is so much better than a deduction; it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax. You can qualify for a tax credit worth between 20% and 35% of what you pay for child care while you work. But if your employer offers a child care reimbursement account – which allows you to pay fort the child care with pre-tax dollars – that might be a better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go. (In any case, only expenses for the care of children under age 13 count.) You can’t double dip. Expenses paid through a plan can’t also be used to generate the tax credit. But get this: Although only $5,000 in expenses can be paid through a tax–favored reimbursement account, up to $6,000 for the care of two or more children can qualify for the credit. So, if you run the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
Estate Tax on Income of a Deceased person: This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let’s say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor’s estate added $45,000 to the estate-tax bill. You get to deduct that $45,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $22,5000 itemized deduction on Schedule A. That would save you $6,300 in the 28% bracket.
Refinancing Points: When you buy a house, you get to deduct in one fell swoop the points paid to get your mortgage. When you refinance, though, you have to deduct the points on the new loan over the life of that loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage. That’s $33 a year for each $1,000 of points you paid, not much, maybe, but don’t throw it away. Even more important, in the year you pay off the loan—because you sell the house or refinance again, you get to deduct all as-yet-undeducted points. There’s one exception to this sweet rule; If you refinance a refinanced loan with the same lender, you add the points paid on the latest deal to the leftovers from the previous refinancing, and deduct that amount gradually over the life of the new loan.
Home Buyer Credit: Most people think this credit expired in 2010, and it did for most homeowners. But, there’s a special rule for members of the uniformed armed services., the foreign service or the intelligence community who were on extended duty outside of the United States at least 90 days during the period after December 31, 2008 and ending before May 1, 2010. If you qualify and you bought a home before May 1, 2011, you may qualify for a tax credit worth $8,000.