None of us want to pay more taxes than we need to, so taking advantage of deductions is crucial. Here are a few lesser-known deductions to be aware of.
Image source: Getty Images.
1. Student loan interest
If you're one of the 43 million Americans stuck paying off student loans, here's some good news: You may be able to deduct up to $2,500 in student loan interest. Better yet, you don't have to itemize your deductions in order to take advantage of this allowance.
But of course, it's not that simple. To qualify for the student loan deduction, your tax filing status can't be married filing separately. Also, you can't be claimed as a dependent on someone else's tax return. Furthermore, there are income limits associated with this benefit. For 2016, you can't take the deduction if your adjusted gross income (AGI) exceeds $80,000 as a single tax filer, or $160,000 as a couple filing jointly. And the deduction begins to phase out for single filers whose AGI exceeds $65,000 and joint filers whose AGI exceeds $130,000.
2. Job search costs
Looking for work can be a costly endeavor. Thankfully, you may get a bit of a tax break if you keep a solid record of your expenses. You can write off all transportation costs associated with your job hunt, including air or train fares, gas and parking expenses, and lodging. If you utilize a resume service, you can deduct that cost as well.
But there is a catch. First, you can only deduct expenses that exceed 2% of AGI. So if your AGI is $25,000 and you spend $1,000 in eligible job search costs, you can write off $500. Also, you can only take a deduction for job search costs if you're looking for work within your established field. So if you're a researcher looking to go from one pharma company to another, you can deduct your job search costs if they're high enough. But if you decide to ditch the lab in favor of a job teaching poetry, you can't write off the costs involved. Similarly, you can't write off the costs of searching for your first full-time job, so if you're a recent college grad, you're out of luck.
3. Moving expenses for a job
Whether it's your first job out of college or your fifth, if you move a considerable distance in order to work, you can deduct your moving expenses on your taxes provided you meet certain criteria. First, the distance between your old home and your new job must be at least 50 miles greater than your previous commute. If you used to commute 20 miles each way, your new job needs to be at least 70 miles away from your last home to qualify for the deduction. Furthermore, you'll need to work for at least 39 weeks during the 12-month period after you move. But as long as you meet these conditions, you can deduct all the costs associated with your relocation, from moving truck fees to short-term storage.
4. Medical expenses
Medical bills are a burden for many working Americans, but if your out-of-pocket costs are high enough, you might benefit from a tax deduction. You're can deduct qualified medical expenses that exceed 10% of your AGI. So, let's say your AGI is $60,000 and you spend $7,000 on medical expenses over the course of the year. In that case, you'd be able to take a $1,000 deduction. Older Americans get even more flexibility through the end of 2016. If you're 65 or older, you can deduct medical expenses that exceed 7.5% of your AGI.
What constitutes an eligible medical expense? Any time you pay for a procedure, doctor visit, or prescription, you can count those costs in your calculation. You can even include travel costs to and from appointments provided you keep a detailed record of what these entail.
5. Gambling losses
Had a bad day at the casino? Believe it or not, you can write off your losses provided you have the winnings to deduct them from. Let's say you lose $1,000 one day but previously won $3,000. You can deduct that $1,000 and only pay taxes on the remaining $2,000. To do this, though, you'll need to have kept a detailed record of both your winnings and losses, including the dates you gambled, the type of gambling you engaged in, and the outcome.
The savvier you are about taking deductions, the more you'll be able to reduce your taxable income. So, while reading up on deductions might take time, it's worth the effort if it puts more money back in your pocket come tax time.
