There are a whole lot of lines on your tax return. Have you researched every last one, making sure you're taking advantage of all the legal ways you can cut your tax bill? Few people do, and even some tax professionals miss opportunities to reduce a taxpayer's tab.
Have no fear -- the Fool is here, giving you the scoop on the most overlooked tax credits and deductions. Drum roll, please!
1. Educator expenses
If you're a teacher or school administrator, you just might qualify for a deduction that will allow you to reduce your taxable income. According to the National Education Association, the average K-12 teacher spends approximately $400 annually out of pocket for classroom supplies. In the past, many teachers would take those expenses as deductions on their tax returns, under "miscellaneous itemized deductions." But most teachers saw no benefit, since only those miscellaneous itemized deductions that exceed 2% of adjusted gross income (AGI) will actually reduce taxable income.
However, there is a $250 "above the line" deduction for qualified supplies available to certain teachers and administrators. You don't have to itemize your deductions to claim this deduction, and there are no income limitations.
2. Retirement savings contribution credit
If you make a contribution to virtually any retirement account (such as an IRA, 401(k), 403(b), or 457), you may be eligible for this credit. You really have to dig for this one, since most people won't even look at the retirement contribution information reported on their W-2 forms. Even if you use a computer program to complete your return, it's possible to overlook reporting your 401(k) contributions. This credit is limited to the lower level of the income spectrum, but if you qualify, it's a wonderful (and relatively easy) way to cut your taxes.
3. Home loan points
Did you overlook the deduction for the points you paid on that new mortgage or home equity loan? Many people do. Generally, the points that you pay for a loan are immediately deductible, while those paid to refinance an existing loan must be deducted on an amortized basis over the life of the loan. But if the balance of that loan is later repaid all at once (by selling the home in question or refinancing again), the unamortized portion of the loan points can be immediately deducted.
4. Student loan interest deduction
This is another way to reduce your taxes without having to itemize your deductions. As you may know, most interest paid for personal expenses is no longer deductible. But Congress has carved out an exception for student loan interest, and you don't have to use Schedule A in order to claim this little gem. There are income limitations, and if your student loans are large, it's possible you won't receive a deduction for all of the interest you paid. But for the majority of taxpayers, this is an overlooked way to lower your tax bill.
5. Tuition and fees deduction
Education credits aren't the only ways to shave a few dollars off your tax liability. If you're taking qualified college courses, it's possible that you can claim a deduction for these expenses. While there are income limitations, it's another "above the line" deduction; you can claim it even if you don't itemize your deductions on Schedule A.
6. Charitable and medical travel
Do you use your auto for charitable purposes? If so, you can deduct $0.14 per mile for all qualified charitable travel. In addition, you can deduct your out-of-pocket expenses when you are serving a qualified organization. For example, Scout leaders can deduct the cost of uniforms. Keep in mind, however, that you can't deduct the value of any time you donate to a charitable cause.
You probably also use your personal vehicle for medical travel -- to and from your doctor and dentist visits, for example. How much you get to deduct per mile varies from year to year, so check the IRS website at irs.gov for the latest figures. If you have to travel a great distance for medical treatment, the actual cost of the travel, including airfare and lodging, can also be deductible.
It's not too late
Did you miss any of these deductions? Hopefully not. But if you did, you can always file an amended tax return (typically you can amend up to three years after your original filing deadline) to recoup your overpaid taxes.
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This article was originally published on March 3, 2006. It has been updated.
When he's not dealing with tax issues, Roy Lewis is a motivational speaker who lives in a trailer down by the river. He understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns, so long as you promise not to ask him which stock to buy. He'll be glad to help you compute your gain or loss when you finally sell a stock, though.