Tax season is rapidly approaching, so it's about time to start getting your ducks in a row to make sure you maximize your deductions and credits.
Unfortunately, lots of taxpayers don't end up claiming all of the tax benefits to which they're entitled. For example, many taxpayers think the education credits and deductions only apply to traditional college students. And many people don't know that the IRS gives lower-income individuals free money just because they choose to save for their retirement.
Here are three underused IRS forms that could mean money in your pocket.
Did you move in the past year? You might be able to qualify for a nice tax deduction thanks to IRS form 3903.
Many people think the moving expenses deduction only applies to people who already have a job lined up and move for this reason. However, the actual credit is much more flexible than that.
According to the IRS, it is not necessary to have a job before moving to a new location, so long as you work full time for at least 39 weeks during the first 12 months after you move. So if you move to a new location and begin full-time work a month later, you should be able to take the deduction.
You also need to pass the "distance test," which means your new job location is at least 50 miles further from your former residence than your old job was. For instance, if you get a job that is 60 miles from your old house, and your previous job was 10 miles from your old house, you pass the "distance test."
The actual expenses you can deduct can really add up. You can deduct storage and transportation costs for your belongings, as well as travel and lodging costs on the trip to your new home. Depending on how much stuff you have and how far you move, this could amount to several thousand dollars in deductions.
IRS form 8863 is all about the education credits available, but many taxpayers don't realize just how broad some of these are.
The American Opportunity Credit is the most well known, and it applies to expenses incurred during the first four years of postsecondary education. However, the other education tax credits and deductions have a much wider reach.
First, the Lifetime Learning Credit can provide up to $2,000 per student and is not limited to the first four years of college. In fact, the recipient doesn't even need to be in a degree program. Even if you take just one course for the purpose of developing your skills, you could qualify for this credit. You can even claim the credit if you use the proceeds from a student loan to pay your tuition.
Expenses other than tuition can qualify. Money spent on textbooks, fees, school supplies, and other necessary equipment counts toward your eligibility.
Many people don't realize that the IRS actually gives away money to low-income individuals who save for their retirement. If this describes you, IRS form 8880 could mean a juicier refund for you.
The full version of the credit provides 50% of the first $2,000 of contributions to a retirement plan or IRA. So, for single filers making $18,000 or less ($36,000 for married taxpayers), the credit could be worth up to $1,000.
And if you make more than that amount, you may qualify for a partial credit amount of 10% or 20% of your qualifying contributions. The upper income limit is $30,000 for the 2014 tax year ($60,000 if you're married). In other words, if you're just under the maximum, the credit can still be worth up to $200.
Basically, this is free money to encourage you to save for your retirement. And if you're worried about your money being tied up for decades, consider a Roth IRA, which allows you to withdraw your original contributions (but not any investment gains) penalty-free if the need ever arises.
Don't miss out on free money
This is by no means an exhaustive list, and there are literally hundreds of deductions you could possibly qualify for. These are just a few that are commonly misunderstood or unknown by taxpayers.
The bottom line is that you shouldn't let a lack of knowledge prevent you from getting the tax refund you deserve. Companies like TurboTax publish lists of commonly overlooked deductions. Or, better yet, you can invest about $20 and a few hours of your time in a more comprehensive book of tax breaks like this one. Even if you find just one additional deduction, it could be well worth it.